I consider that we are moving into a time of destabilization. But that does not alter my approach to money.
- Keep my reciepts and run a budget
- Pay down debt
- Contribute in a mixed manner to work superannuation — this is a kiwi thing and your contributions are dollar matched by your employer
- Get the emergency fund back
From my point of view, though I think we will hyperinflate (I wouold prefer deflation) the process remains the same. I can’t control what our politicians will do. I do not assume they are competent: I assume the opposite.
And I don’t time the market. With one exception.
I knew the market might take anywhere from a few months to a few years to recover based on previous cases. This crash seemed mostly due to the coronavirus, which must end soon, so I assumed it would be a fairly short crash. In any case, stocks had already fallen sharply and were well cheap. I decided to buy them up in stages over about six months to spread the risk.
I’ve pretty much done that now. The result? Stock prices recovered much more quickly than I anticipated. The first transfers I got a great bargain, but after that not so much.
Then I happened to look at a long-term S&P 500 chart and saw that by May 2020, the market was already back to about where it was when I first had this brainfart in 2018.
In other words, that trouble and effort was for nothing. It made almost no difference to the eventual outcome.
Had I stuck with my asset allocation strategy and ignored everything else, I would have been fine.
This demonstrates that even if you approximately estimate the timing of a crash, you won’t necessarily profit. You might also need to predict how far the market will fall and how quickly it will recover. That’s a lot of guesstimation where many things could go wrong.
Initially, I was so happy with myself after the market crashed just 1.5 years after I suspected it would, I thought, maybe I’ll time the market a bit from now on. When I get that feeling there’s too much exuberance, prices are out of whack, I’ll sell off a bit and wait.
But now, having examined the outcome in the clear light of day, I can see I was kidding myself.
The exception is that I would not buy any investment properties now. NZ is is an asset bubble: the paper value of our house is not that important — we have to live somewhere and we did not buy or pay at the maximum amount the bank would lend (go for half that) and the house valuation flucutates tens of thousands a month right now.
You can’t see properties fast. So buy when everyone else is not. Then hold.
I have, since I married the first time, bought three houses and my ex wife still lives in the first one. Trading up and flipping houses — in NZ where there are bright line clauses around property trading (which attracts GST @ 15%) and selling family homes (which does not) is a mugs game. Your mileage will vary elsewehere.