Property, shares boom: How to invest safely

When asset prices surge, it’s tempting to run with the herd even if it’s a dangerous time to invest. Here’s how to be careful.

It’s rich pickings for investors across Australia right now as just about everything seems to be making money.

Property prices have just had their best month in 17 years and every capital city is growing strongly, while Aussie shares are not far from record highs.

Overseas shares are surging too, some to mind-boggling levels that many investments specialists now say are stupid.

The fear of missing out is a powerful force, and partly explains the recent jump in new stockmarket investors and booming demand for housing as more people try to squeeze their foot in the door.

Investing in shares and property can create huge wealth over the long term but should be done carefully when asset prices are running hot.

Shares and property have been climbing in recent months. Photo: NCA NewsWire/Joel Carrett

Billionaire investor Warren Buffett famously said people should be greedy when others are fearful, and fearful when others are greedy.

Greed is now in vogue, and forecasts for the rest of 2021 are generally positive, but if you want to stay relatively safe and reduce the risk of losing money, here’s what to consider.

CHEAP RATES WON’T LAST FOREVER

Borrowing to invest is a popular strategy, especially for real estate where very few people have a lazy $500,000 to $1 million lying around to slap onto an investment property.

The lowest interest rates in history have been behind surging asset prices because people who traditionally stashed cash in savings accounts and fixed interest investments are hunting higher returns.

Don’t base investment decisions on rates staying this low. Always build in a buffer by working out what interest you’d be paying if rates were at least 3 per cent higher.

DIVERSIFY

Keeping all your investment eggs in one basket is dangerous.

Spread money across different shares, sectors and countries and, most importantly, different asset classes.

An investment property is a big single asset, but you can diversify across other properties through real estate investment trusts, managed funds or exchange traded funds.

Infrastructure is forecasts to do well in the coming years, and a sprinkling of cryptocurrency or other alternative assets can add spice to an investment portfolio – if you can handle the volatility.

Investors who constantly follow the herd can come unstuck. Picture: Istock

BUY IN BITS AND PIECES

Finance people call this dollar cost averaging, and it simply means spreading your purchasing out over months and years.

That way, buying at a peak won’t be so painful if there’s a sharp crash shortly after.

Superannuation funds use this strategy because your employer injects compulsory contributions into your account at least every quarter.

BE WARY OF THE HERD

Years ago, back in the olden days of overseas travel, I watched a herd of wildebeest and zebras drinking from a Serengeti waterhole.

Suddenly one zebra would think it saw a crocodile and take off, and 200 other skittish animals stampeded away behind it. Eventually they all came back

This will happen when financial markets next head south, and if you’re investing with the galloping herd right now, be prepared to ride out its skittish times in the future.

Trying to time stampedes, up or down, could see you get trampled.

@keanemoney