Don't panic. Stay with your plan
By Andrew Philip With all the turmoil occurring around the world and in financial markets it is easy to fall into the panic trap. It is natural to worry in the short term about the value of your home and your superannuation. But long term success is based on good long terms plans, both in our personal and financial lives.
In late August, after seeing America’s credit rating cut from AAA, the financial gyrations in Europe and the riots in England, all in one week, it is difficult not to panic at least in the short term. However, it is important to keep a firm eye on the things that matter.
Firstly, when making the decision to move your home to a retirement village, remember the two well established truths about property:
• Always try to buy and sell in the same market; and • Position, position, position.
If you are selling your home, don’t try to out-guess the market. Always try to buy into the village at the same time (“in the same market”) that you sell your existing home. In other words you can expect that, for example, village owners have adjusted the selling prices of units to match movements in house prices in surrounding suburbs.
Therefore, the surplus that you expect to make when selling your current home and buying a retirement villa will remain relatively consistent if you buy and sell in the same market.
The other property truth is well known: position (near shops), position, (near transport), position (near medical and other services)! If you are buying into a village, choose one that has these attributes.
Secondly, share markets can be frightening things because you can see daily movements in values. Share prices and superannuation funds move in value each day, and it is easy to feel better or worse off on a week-to-week basis if you follow the financial markets closely. Fortunately these gyrations mean little over the long term. It is interesting to note that during the tumultuous week in mid-August, ,the share market fell and rose about 5% within the week. It would have been natural to feel a degree of panic about the value of your super.
However, by the end of that week a super fund holding shares would have ended the week with a higher value than it started with (notwithstanding the big dip mid-week). The graph below illustrates what actually happened. The All Ordinaries Index started the week around 4170 then it fell 3% to 4050, but it recovered to 4245 by the end of the week, up 5% from the mid-week low point. Sometimes we are better not to look too deeply on a day-to-day basis in weeks like that!