How to survive in today’s market

Without wanting to upset any creationists out there, most people are aware of Charles Darwin’s seminal work On the Origin of Species and the scientifically validated Theory of Evolution it spawned.

"It is not the most intellectual of the species that survives;

“It is not the strongest that survives;

“but the species that survives is the one that is able best to adapt and adjust to the changing environment in which it finds itself.”

Perhaps interestingly, the quote above has been attributed to Darwin himself but is actually a paraphrase of his work by Leon C. Megginson, professor of management and marketing at Louisiana State University in 1963.

So unless you have been living under a rock, you must know that the economic landscape has forever changed since the GFC in 2008. What may have worked, even as little as decade ago, is unlikely to provide the same result in today’s market.

We are entrenched in a low interest rate, low global growth and low credit growth environment and that looks set to continue for some considerable time.

Due to rising property prices, especially in Sydney and Melbourne, whole generations of investors are possibly being priced out of the market and even some seasoned property investors are finding themselves unable to obtain new finance or refinance to continue to grow their portfolios. 

Additionally, the Australian Prudential Regulation Authority (APRA), which regulates the Australian financial services industry, has made it clear they want to see a restriction to investment lending.

In conjunction with recent jawboning from the Reserve Bank of Australia about the potential introduction of macro-prudential tools such as limiting investment loans to a maximum of 80 per cent LVR, savvy investors may need to find new ways to continue to benefit from the undeniable wealth effects available from property investment.

The other endangered species out there over recent years has been the “yield hunter”. That is, those savers, or retirees, who require a minimal rate of return from their nest eggs to live off.

Unfortunately, given the near-zero interest rate returns from their normal diet of traditional investments such as bank interest, term deposits or government bonds, the yield hunters have been forced to hunt in different markets.

Many have been forced into higher-risk strategies such as share markets, and especially into those shares that are able to provide a regular dividend, given they could no longer feed on their normal “diet”.

Of course, the businesses seeking to attract those same yield hunters have also had to adapt to make themselves more competitive by offering higher and higher yields.

Then, as more and more yield hunters have descended into the market over the past few years, unfortunately to survive many businesses had to cut costs and staff in order to continue to provide dividends and it quickly became a race to the bottom for some.

Now with Greece in default to the IMF to the tune of $1.7 billion, and a Grexit from the eurozone likely at some stage, investors are undeniably nervous as billions of dollars are being wiped off the global equity markets. This will probably spook the yield hunters into looking for alternative strategies that are considered “safe”. 

We would not be surprised to see more and more of these yield hunters now diversify into direct property over the next decade. However, it is also unlikely that they will want to take on any significant debt to do so.

That is why we have created a whole series of Property Without Loans strategies, to be in a position to actively attract and feed these hungry yield hunters with the exact low-risk, high-yielding investments that they will be willing to almost devour each other to invest in.

See, while we do not consider ourselves exceptionally intelligent, we do feel confident that even a child can see the logic in what we are talking about.

So if you want to continue to grow your wealth, but you are either unable to, or simply do not want to, continue to take on new debt, then you will need to find a range of cutting edge capital growth and cash flow strategies and adequately adapt to the changing times.

Will it mean doing something different. YES.
Will it mean learning new skills. PROBABLY!
And if you don’t? Well, you will probably end up going the way of the dodo!