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How to Box Like a Pro Investor

To be a successful property investor you’ve got to have a bit more than money and a few savvy moves on a spreadsheet, writes Ed McKnight.

19 February 2024

Investing demands a particular mindset; one that keeps you steady as the market tips up, down and side to side.

The way we think influences the decisions we make. This means adopting the right mindset can be the difference between success and failure, at least when it comes to property investment.

Here are the top four mindset shifts needed to be a successful investor.

#1 How you: view gains

Say you buy a share for $10. Then, over the next three years, it goes up to $20. You doubled your money and you’re feeling pretty good.

Now let’s say you buy a share for $10. Over the next three years, it goes up to $30. This time you’re ecstatic, but then it drops back to $20. Now, how do you feel?

Chances are (if you’re like most investors) you feel stupid and think: “I should have sold when it was at $30.” Even if you’ve made the same amount of money, in the same amount of time. Because in the second scenario you’re more likely to feel like you lost $10 instead of making $10.

Property investors can fall into this negative mindset. Since the peak last year, property prices have fallen 18 per cent. Ouch. But initially, they’d gone up by over 40 per cent. So, investors could still be up by about 20 per cent (depending on when you bought). That’s still an enormous return.

#2 How you: see lower prices

There are always investment opportunities in any market. When prices go up, most people think: “The price of houses is going up, I should get in the market now so I don’t miss out.”

If prices go down, the same people think: “Oh, it’s a bad time to buy a house, property prices are going down.”

Winning investors see property prices falling and think: “Properties are now on sale. They are cheaper, there are more options, and I face less competition.”

It’s such a different mindset, but it makes sense. If tins of tomatoes were on sale at the supermarket – you’d buy more. What if we thought about a market crash as a property sale?

#3 How you: view risk

Most investors think assets like cash in the bank and term deposits are “safe” investments, whereas they think managed funds, property and shares are higher risk. But it depends on how long you plan on holding the investments. That’s your investment horizon.

Term deposit – lower-risk short term/higher-risk long term. Over the short term, keeping cash in a term deposit is not very risky. This is because the likelihood the investment will decrease in value is very low. And the likelihood that the bank pays you back the money with the agreed interest rate is very high.

But over the long term, things like term deposits become risky. Inflation makes your cash worth less. On top of that, you miss out on more and more of the gains from assets that grow in value faster.

Shares and property are risky over the short term. The prices of these assets are volatile. They can go up and down very quickly. This means the value of your investment could go down within the next year. If you sell you could lose money.

But over the long term, the share market tends to increase faster than term deposits. So if you hold for longer, the risk goes down. You just have to deal with the ups and downs of the market in the meantime.

#4 How you: look at the ups and downs of the market

When you invest the price of your assets will go up and down. That’s part of investing. But you’ll often get more returns if you can accept more volatility.

For instance, if you take $100 a week and put it into the bank for the next 10 years, you might get a 2 per cent return (on average). At the end of that 10 years, you’ll have $58,000. Great.

But if you invested that same money in shares, you’d have just over $78,600 in the New Zealand stock exchange. That’s over $20,000 extra, which is 36 per cent more.

Over time that difference compounds and you’ll often have more money if you invest in assets. That’s things like shares and property. Yes, the price of assets go up and down more than just having your money in the bank, but you’ll often be ahead when you model it out over the long term.

How can I apply this to my investment journey?

These four mindset shifts will change the way you invest, particularly as a property investor. Once you start thinking like a pro-investor, you set yourself up to make those long-term gains.

Informed Investor's content comes from sources that Informed Investor magazine considers accurate, but we do not guarantee its accuracy. Charts in Informed Investor are visually indicative, not exact. The content of Informed Investor is intended as general information only, and you use it at your own risk.


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