Each year brings its own set of wins, challenges, and lessons to learn and 2020 was certainly no exception.
It’s been an extraordinary year.
Nobody could have foreseen all that’s happened, including the coronavirus, its economic fallout and the way our lives changed.
But as we head into 2021, I can’t help but reflect on what Australia as a country has accomplished and what I’ve achieved personally, what I’ve overcome, and the lessons I want to carry with me into the New Year.
Here are my top 20.
1. Expect the unexpected.
Every year an unexpected X factor comes out of the blue to undo the best laid plans – sometimes on the upside (like the miracle election result in mid-2019) and sometimes on the downside like Covid19 in 2020.
Strategic investors try and protect themselves from these surprises by owning the best assets they can, having financial buffers in place to ride through the ups and downs of the property cycle, setting up the right ownership structures, insuring themselves and obtaining holistic advice from their consultants.
But the biggest risk is what no one sees coming, because if no one sees it coming no one is prepared for it and if no one is prepared for it, it’s damage will be amplified when it arrives.
While an X factor seems to come every year, a major Black swan event as some call it, one that “breaks the world”, tends to come every decade.
2. Focus on the long term
This year the performance of our share market and the property markets, as well as the numerous pessimistic property predictions by the so called “experts” reminded us that we should not make 30-year investment decisions based on the last 30 minutes of news.
Strategic investors have a long-term focus and don’t change their plans based on what’s happening “now”.
In fact, they don’t buy investments that are working now – they investment in the type of assets that have always worked.
In other words, they don’t chase the next shiny toy or the next hotspot.
Clearly this was the thinking behind Warren Buffets quote “Be fearful went others are greedy and be greedy with others are fearful.”
But while that’s easy to say – it’s not so easy to do when the value of your share portfolio or your superannuation fund suddenly tanks as happened in March, or when you’re worried about the value of your home or investment properties.
3. It’s the media’s job to entertain you – not educate you.
Remember… it’s media’s job to get eyeballs on the advertisers’ content, rather than to educate you.
However, when the pandemic first hit, many of us watched the 6 o’clock news, and then the 7 o’clock news to see if there was something different reported and then maybe the 7:30 Report to get another angle on what was going happen to our health, our economy and our property markets.
At the same time my inbox kept dinging with alarmist messages that were uninformed or unbalanced.
Think about it… how many of those expert’s forecasts came true?
But look how many people worried and stressed about the potential outcomes that just didn’t occur.
And unfortunately being overwhelmed with misinformation led many people to live in a state of fear and anxiety and caused some to make disastrous investment errors.
4. Take economic forecasts with a grain of salt.
Remember all those forecast that unemployment would reach 10% to 12%? What about those forecasts of property values dropping 20% or more?
They didn’t come to fruition, did they?
Similarly, if you’re reading something frightening in the business section, or hearing it on TV, or learning about it from your neighbour, it’s almost certainly too late to act—because the information is already reflected in market – in either the share price or property prices.
5. Don’t believe the Doomsayers
There will always be someone out there telling you not to invest in property.
This year the doomsayers seem to have found their moment.
Property Pessimistic and Negative Nellies were out in force as were the so called “experts looking for a headline” telling anyone who would listen to them the real estate Armageddon was ahead of us.
There’s nothing new about these doomsayers who have been peddling their forecasts for a decade or two.
There will always be somebody wanting to stall the aspirations of their fellow Australians who are looking to take their financial futures in their own hands and do something about it.
Don’t let them stop you achieving your financial dreams – the doomsayers are always wrong, at least in the long term.
6. No one really knows what’s going to happen to the property markets.
Be careful who’s forecasts you listen to.
There are 25 million property experts in Australia - everyone seems to have an opinion about property, don’t they?
But you know what they say about opinions… they’re like belly buttons; everyone has one but they’re basically useless. So be careful who you listen to.
Of course this year even the respected economists got their predictions wrong.
So as a real estate investor, while it’s important to have mentors make sure you’re listening to somebody who has not only built their own substantial property portfolio, but someone who has kept their wealth through a number of cycles.
There are just too many enthusiastic amateurs out their offering investment advice at present.
7. There is no such thing as the “Australian property market.”
There are multiple markets in Australia, and each state is at a particular stage of its own property cycle and within each state there are multiple submarkets depended upon price point, geography and type of property.
This means that despite all Australians enjoying the same low interest rate environment, the same tax system and the same government, some property market outperformed others significantly in 2020.
But there’s nothing new about this… local factors have always driven property market performance.
So avoid paying attention to commentary that gives broad generalisations about the Australian property market or even the Melbourne, Sydney or Brisbane property markets.
8. Don’t try and time the market.
Even though they are armed with all the research available in today’s information age, economists never seem to agree where our property markets are heading and usually get their forecasts wrong.
That’s because market movements are far from an exact science.
It’s more than just fundamentals (which are relatively easy to quantify) that move markets. One overriding factor the experts have difficulty quantifying is investor sentiment.
So rather than timing your investment purchases (or sales), if you buy the right investment-grade assets, time in the market is much more important than timing the market.
And if you think about it, the top and the bottom of the market are really only one or two days or weeks or months in the cycle.
9. The crowd is usually wrong
“Crowd psychology” influences people’s investment decisions, often to their detriment.
Investors tend to be most optimistic near the peak of the cycle, at a time when they should be the most cautious and they’re the most pessimistic when all the doom and gloom is in the media near the bottom of the cycle, when there is the least downside.
Market sentiment is a key driver of property cycles and one of the reasons why our markets overreact, overshooting the mark during booms and getting too depressed during slumps.
Remember that each property boom sets us up for the next downturn, just as each downturn sets the scene for the next upswing.
10. Property Investment is a game of finance with some houses thrown in the middle
The rules of the game changed significantly, making it increasingly difficult to obtain finance even with strong serviceability and significant equity.
Moving forward this is likely to change in March 2021 with mooted loosening of banks’ lending criteria
What this does highlight though is the significant opportunity cost in having underperforming assets in your portfolio.
If you can only afford to own 2 or 3 properties, make sure they are all “investment grade” properties that are working hard for you.
11. Invest for Capital Growth
Capital growth should be the key driver for your investment decisions, rather than cash flow.
Sure cash flow is important and will keep you in the game, but it’s capital growth that gets you out of the rat race.
At Metropole our 40 year analysis of investment returns shows that properties with higher rental yields generally deliver low overall returns for investors.
Our analysis proved that, over the medium to long term, properties with lower rental returns (but stronger capital growth) delivered significantly higher overall return (i.e. capital growth + rental return), while “cash flow properties” with high rental returns delivered lower ones overall.
What this means is those who invest in the more affordable suburbs that deliver a high level of rental return, with the expectation of strong overall retruns, achieve exactly the opposite result.
12. There will always be reasons not to invest
Every year brings its own set of crises and lots of reasons not to invest.
You can go back as far in history as you like and there won’t be a crisis free year.
Sure some years are worse than others, but there is always bad news and much of it is unexpected.
Where investors get into trouble is that rather than focusing on their long-term goals, they see these crises as once in a generation events that will alter the course of history, when in reality they are just the normal path of history.
13. Property investment is risky in the short-term, but secure in the long term
2020 reminded many property investors that real estate is not a way to get rich quickly.
Yet those who stay in the game benefit from the power of compounding growth which builds wealth but takes time.
I found it takes the average property investor around 30 years to become financially independent, but most don’t make it because they can’t stay the distance in part because they don’t have good cash flow management.
Many people get into property investment to improve their cash flow position, but if they don’t have good money habits to start with taking on more debt only compounds the problems.
14. Plan for the worst and look forward to the best.
As a property investor, I protected myself from the challenges that 2020 brought by:-
- Owning the right assets – investment grade properties in desirable locations.
- Having multiple streams of income from a diversified portfolio of residential, commercial and industrial properties as well as shares.
- Owning my assets in the correct structures that protected my interests and were tax efficient.
- Having set up financial cash flow buffers to see me through difficult times.
- Protecting myself and my assets with adequate insurance policies.
Fortunately, I didn’t need to rely on these protections I put in place long before the challenging times, and having them in place helped me sleep much better.
15. There are always risks associated with investing.
Don’t be afraid of failing, because the biggest risk is not doing anything to protect your financial future.
Sometimes negative experiences, mistakes and failures can be even better than a success because they teach you something new which another win could never teach you.
However, we are often so driven to get things right that we fail to see the value in the things we get wrong.
Instead we spend our time wishing we had done it differently.
Or not doing anything at all because the fear of making mistakes paralyses us. If you get it wrong, learn from your mistake and make it count by doing it differently next time.
One “failure” can – with time – help you create many successes.
16. Cautious optimism is better for your investment health than perma pessimism.
Life is not fair – get used to it.
But having said that, optimists are more successful in all areas of life than pessimist, or so-called realists (who are just pessimists in disguise). And this includes in the realm of investing.
Now this doesn’t mean that you will necessarily be happy and smiling all day.
But it does mean that you have an ability to look at a situation and while it might be tough, you’re able to see around that corner and see the possibilities...rather than the difficulties.
Those who have high expectations usually rise up to meet them.
17. Time is a limited resource – don’t waste it.
We all have 1,440 minutes every day, but some of us squander it, waste it or don’t use it efficiently,
2020 reminded me how truly valuable time is.
You can lose money and get it back again, if you’re sick you can often get your health back again, but once the time has gone it is gone and is irretrievable.
Start to capitalise on the time you have and get a whole lot more done.
The problem is many people confuse moving with progress.
Just because you’re doing a lot doesn’t mean you’re getting a lot done – I found many people just seem to be running in the same place.
Interestingly working from home in 2020 has made me much more efficient, I get a lot more done in those 1,440 minutes I have every day.
Another way of looking at time was brought home to me in 2020 and that it that life is short.
On some level most of us know that life is short, but 2020 taught us and solidified the fact that we don’t get a second chance and the importance of truly appreciating what and who we have in our lives whilst living to the fullest.
18. The only certainty is change
We all face changes every day – whether it’s a simple as a change in the weather or something as significant as another wave of the coronavirus pandemic.
Changes are a normal part of life; the problem is most of us don’t like change – we like certainty.
However, learning to expect change has brought me hope during challenging or unexpected life events.
I’ve come to realise that it’s not the circumstances or the changes that dictate how my life will go, but rather how I handle those changes and disruptions.
Rather than worrying about all the changes occurring, I’ve learned the concept of having a useful belief about the changes that are happening to me and seeing what good will come from them.
The more I feel in control of the life my life, the more comfortable I feel and the better I perform in all areas of my life.
19. Worry Better
Fact is, most things you fear will happen never do. They’re just monsters your mind.
And if they do happen, they’re most likely to be not as bad as you expected.
But forget the saying “don’t worry be happy; instead worry the right way – it’s better than not worrying at all.
You see…worry can play important role in your life, and it doesn’t have to be destructive.
We’re all wired to worry.
That’s because worry had an evolutionary benefit, it drew our attention to the fact that there were some things that you should be doing while there were other things that should be avoided.
Those who worried correctly survived and evolved.
But today time spent worrying is time that you could spend identifying opportunities and taking action.
Worrying about the right things can motivate you, but if you find it unproductive, try to take your mind off things by getting engaged in other activities:
I’ve learned the trick of limiting the amount of time I worry.
I was taught the concept of telling myself to put a limit of say 5 minutes or 10 minutes on your “worry time” and then forcing myself to move on by focussing on other tasks or engaging in other activities.
It’s a good trick to learn.
20. This too shall pass.
How often do we need to hear the world as we know it is coming to an end, before we realise that the world as we know it has not come to an end.
Michael Yardney is CEO of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Update blog.
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