I am back from the US where I have been researching property opportunities. The US market has fallen up to 50% in the last 3 years, which is unprecedented in the post war era.
Whilst it is plainly the case that property was overvalued by 2007 it is now at historic lows. With interest rates being held at virtually zero until 2013, 30 year fixed rate mortgage rates at sub 4% (historic lows) and with mortgage finance becoming easier to obtain all the factors are in place for a recovery. I will keep you posted on developments.
On matters closer to home George (our resident clever person) has been crunching numbers for the portfolios from 1 January 2009 to 31 August 2011.
I think these figures are interesting in that even after the massive volatility of the last month (and market falls) the performances of the portfolios are still very positive.
If one had simply invested on 1 January 2009, gone somewhere without news flow, and then rang our office today to ask for a performance update we could confirm:
Adventurous Portfolio – 11.58% p.a.
Balanced Portfolio – 12.51% p.a.
Cautious Portfolio – 13.06% p.a.
All of the above must be viewed in relation to cash yields of say 2 – 3% maximum on average, so the returns have been about 5 times cash on average (500% plus above cash yields).
Longer term investors are not searching for short term trading gains but focusing on generating good long term returns. We accept during this time there will be periods of volatility, which can be unnerving.
So much of successful investing depends upon emotional control. The volatility and resulting anxiety of markets are the single biggest reason that people make ultimately poor and self-defeating decisions. When the markets fall human nature is to do something, when sometimes the best reaction is to do nothing.
We could easily see a strong bounce back in the market valuations by the year end, the return for the markets on the year could quite conceivable end mildly positive. If a client asked at year end what the portfolio had returned for the year and was told 5%, and he or she was unaware of events, it is likely it would be assumed that it had been a quiet and rather boring year!
Attached is a fascinating map from Scottish Widows of the movement in values of various asset classes from 1950 to 2010 which illustrates the value of investing for the longer term in some asset classes and the dangers of investing long term in others.
NOTE: This is written in a personal capacity and reflects the view of the author. It does not necessarily reflect the view of LWM Consultants. The post has been checked and approved to ensure that it is both accurate and not misleading. However, this is a blog and the reader should accept that by its very nature many of the points are subjective and opinions of the author. This is not a recommendation to buy any product or service including any share or fund mentioned. Individuals wishing to buy any product or service as a result of this blog must seek advice or carry out their own research before making any decision, the author will not be held liable for decisions made as a result of this blog (particularly where no advice has been sought). Investors should also note that past performance is not a guide to future performance and investments can fall as well as rise.