home Latest News Here's why investing for wealth is better than being a doomsday merchant – Switzer Financial News

Here's why investing for wealth is better than being a doomsday merchant – Switzer Financial News

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Something that drives me day
in, day out, about investing is asking myself the question: what can I learn
that will make me better at building my wealth and the wealth of those I
advise, write for and create TV, radio and podcasts for? In a perfect world, I’d
remain positive about stocks and property — the huge drivers of wealth — until
I was nervous, and then I’d tell everyone that I’m cashing out into something
safe to preserve my capital.

However, history tells us
that it’s really hard to time the market. The big lesson financial planners are
taught via history and what they tell their clients is that it is “time in the
market, not timing the market that counts.”

Academic work shows this to
be more right than wrong, on average, but if you had started in the stock
market in late October 2007 with say a million dollars, then by early 2009 your
portfolio value could’ve slumped to $500,000! If you’d got scared and went to
term deposits. then at 6% you missed out on a 55% rebound from March 6 to
December 31!

Did I say timing the market
was hard?

But my favourite chart does
also add to the view that being in the market in a quality portfolio really
pays off. The chart below looks at $10,000 invested in something like an
exchange traded fund that captures the stock prices and dividends of our top
200 companies, where the dividends are reinvested. It shows $10,000 becomes
over $453,000 between 1970 and 2009, the year after the GFC crash.

And while
that is an impressive argument for relying on stocks long term, it’s the slope
of the lines that convince me that investing in quality assets work over time.

The blue
line is the Aussie stock market and those big drops are crashes. And that’s
what doomsday predictors are worried about and they fear for others who are in
stocks or property that they could face losses. However, the long-term story
says most of us survive and thrive over time, if we’re in quality assets.

In 1979, a
cottage in Paddington, NSW, was worth $54,000 and today that home/investment
could sell for $2.5 million plus!

The owners
of that property would have lived through 17% home loan interest rates in the
late 1980s and 10.4% unemployment in the early 1990s but there was a pay off in
the long term.

If they were
diligent workers and savers, their quaility assets delivered. Those lefties or
other vested interest whingers, who warn about investing in stocks or property,
are focusing on the short term rather than the long term.

These charts
show the benefit of being a long-term buyer of quality assets.

This one is
longer than I thought I’d find but it makes a nice case for investing in stocks
for the very long term. And for those who wonder if property can produce
reliable results over time, check this out: Sydney house prices have gone up 40.3%
between 2000-03, down 8.9% from 2003-06, up 8.9% from 2006-08, down 4.6% from
2008-09, up 15.8% from 2009-10, down 3.1% between 2010-2012 but then up a huge
42% between 2012-15! And then another 14.96% from 2016-17 before a fall of around
15% from 2016-2019 and then another rise, which we’re in now.

The biggest
fall was the most recent one and it doesn’t rule out that a bigger one could
happen. But history suggests it might not be the 40% that hardliners predicted
was going to happen over the past two years.

What
governments, central banks, banks and consumers/investors can do will even
surprise economists like me but the charts tell us the tendency for the price
of quality assets to rise over time, defying periods of crash and crisis,
sustains the argument for exposing yourself to them.

But what
about the timing? And this is where the patient can be rewarded.

Buying
property and stocks now brings with it risks, as both assets are towards the
end of their cycles, though it wouldn’t surprise me if both did OK over the
next two years. For those out of the market, I’d like to say wait, but this
bull stock market cycle could be as long as the 1950s one that lasted for 15
years. The current one is 11 years old and the average is only nine!

Legendary
investor, Howard Marks, says not only can you time the markets, but it’s
imperative that you do so!

However, it
is hard and I hope for this cycle I can help my clients, readers, viewers and
listeners get it right but I can’t make promises. The nervous, the brave, the
smart and the silly will have to make their own timing decisions. Even if they
get it wrong, as long as they have quality assets, the story will work out.

Those who
bought CBA at $24 in early 2009 have seen the share price go to $83 today and
their dividend yield is now 18.7% before franking! That’s the reward for buying
a quality asset at the right time.

Making money
in the short term is harder than in the long term. But at least with quality
assets you’re a real good chance to do well over time.

The doomsters will be right one
day but they will be wrong long term, unless we end up with another Great
Depression, which can’t be totally ruled out. But currently I’m betting against
it.