Imagine you had an investment property worth $500,000 with a good tenant paying $25,000 rent each year. Your friendly Real Estate Agent approaches you and tells you that the property market is not what it used to be and they have estimated that the property is now worth only $400,000. What would you do?
When we pose this question to our clients, they invariably say “nothing.” They would do nothing. The rationale is that property is a good long term investment and while they have a good tenant, they will hold on to the property. They feel confident that there is a high probability that over time the value of the property will recover, even surpass the original $500,000. Meanwhile, they will enjoy the rental income.
When we suggest they might prefer to sell the property for $400,000 and put the proceeds into a term deposit paying 4.25%, they usually ask if we are feeling okay. The thought of selling a high quality asset when the price is low doesn’t make sense.
If we ask exactly the same questions, but replace property with a superannuation portfolio that includes some blue-chip shares, the response can vary quite significantly. Some people will adopt the hold quality strategy, while others will opt for the term deposits.
If investors considered their superannuation portfolios in a similar way to which they think about investment properties, then good decisions would be taken when the value of portfolios fall.
For those contributing to superannuation, they have the opportunity to buy more units or more shares at lower prices. This will in time add considerably to the strategy of long term wealth accumulation.
So when markets are relatively low and the media is spruiking scary headlines such as “sharemarket crashes” or “a sea of red swept across the sharemarket today” investors should think, “Is it an opportunity to buy low or should I sell low?”
If an identical property next door to the $500,000 investment property above went up for sale for $300,000, would you try to buy it or sell your existing investment property for $300,000?
If investors can think of their superannuation portfolios in a similar way to how they think about investment properties, they will take better decisions for the long term.
