Some people treat property differently to equities, especially if it’s a buy-to-let property that they don’t live in.
Imagine this conversation…
“Over the years, property has done much better for me than equities.”
“Do you use a different strategy for your property investments?”
“I’m not sure what you mean…”
“Well, did you sell your properties when the property markets crashed?
“Of course not.”
“Oh. And did you sell your equities when the stock markets fell?”
“And did you go back in?”
Hmmm. Let’s unpick what’s going on here.
Property is a tangible thing. We love it. We keep it for a long time. We don’t do silly things such as selling low and buying high.
We don’t monitor property values every hour of every day. We don’t know a property’s value until the day we buy it or sell it.
By contrast, the minute-by-minute value of equities is crystal clear. Everyone knows when the markets move up or down.
This graph compares the two using US data, but the pattern is the same for the UK:
Source: Evidence Investor Does our obsession with property make financial sense?
What this means to you
We don’t know what the future holds, especially with all that’s currently going on in America and the pandemic.
Whatever happens, the market will do what the market does. That is, diversified equity values WILL go up over the long-term, just like property values.
In this article, we are banging that drum again – you need to keep your emotions in check when you are making decisions about your investments.
It’s easy when you own property. Just ignore the news. Don’t rush to sell if the price goes down, especially if you’re in negative equity.
Equally, you shouldn’t rush to sell equities if there’s a fall in the markets.
Treat your equity portfolio like your property portfolio. Don’t spend any time worrying about any rise and fall in value. Instead, choose carefully where you invest in the first place (location for properties, diversification for equities), ensure your investment is reviewed annually (that means maintenance for properties, rebalancing in the case of equities), and assume your money is tied up for the long-term (because moving around too often will cost you).
If you found this information useful, you might also enjoy reading (or re-reading) our articles:
- Ticka ticka ticka ticka timing
- How emotions hinder investment success (part 1)
- How emotions hinder investment success (part 2)