What are your options for your money during the current economic downturn?
KEY POINTS:
Property
In the current market, investors should be paying 25 per cent less for a property than at the start of the year.
That's the view of property commentator Kieran Trass, who also believes it will be three to five years before the market rebounds.
"You don't
come off the back of the longest property boom we've ever had in history and expect a short slump."
His advice to investors at the moment is, don't rush in, and buy very hard.
"You need to buy it so it's costing you nothing to own it," he says.
"If you're prepared to tip a couple of hundred thousand into investing in a property right now, you want to make sure it's a damned good deal, because we know how volatile this market is and I don't see the New Zealand economy turning the corner in a hurry."
To sellers he says if you need to get out, get out now - don't wait because things are only going to get worse. And if you don't need to get out, just sit tight.
He questions whether interest rates will really get that cheap. While the Reserve Bank may be lowering the Official Cash Rate - meaning floating mortgage rates are coming down - the international credit crisis is keeping the staple of the Kiwi home loan market, the fixed rate, relatively high.
"Don't tell me fixed rates are going to fall, because where's the cheap money coming from to fund those fixed rates? I don't see it."
Property consultant and fellow commentator Olly Newland is not so definitive.
These are uncertain times, he says, and "anybody that's got a firm opinion about where we're going is really sticking their neck out".
"I'm guessing there's going to be a flight to hard assets, rather than numbers on a piece of paper ... Whether it's tomorrow or next year I don't know.
"People have got to live somewhere, that's the bottom line. Somebody's got to own them [houses]."
He also says there is no one property cycle, with different areas experiencing different cycles.
"I can take you to places which are still going up in value or holding their value, and others which are tanking.
"And the only people who are selling are those that have to, so the market's being driven by people who have to sell."
Cash
While falling interest rates may be good news for property investors, it's a different story for those with their wealth in cash.
Jeff Matthews, adviser with Spicers Wealth Management, says investors can't hide in term deposits and the like forever. With the Official Cash Rate predicted to drop to as low as 6.5 per cent by Christmas, "at some point you have to come out of the cave".
For the conservative, Matthews favours bonds, but says investors should act quickly. "It's still not bad buying if you could lock in some decent stuff to 2014 at close to eight per cent, that's going to be a much better deal than staying in cash."
Even though equities seem scary to some, with the returns on fixed interest investments dropping, shares in blue chip stocks start to look more attractive, he says. "Their dividend yield is getting up into the 6-10 per cent range, which is kind of almost finance company debenture money."
For short-term investors, he would still recommend fixed interest investments.
"But really, if you're investing on a 30-to-40 year time horizon, why are you hiding in cash? You should have growth assets even though it means you're going to go backwards in the short term."
He points out that now is a great time to buy, with good quality assets going at reasonable prices.
Matthews says time and time again he has seen people make the same mistake - take flight from growth assets and back into cash, at a time when they should be making the most of the bargains.
Shares
AMP Capital head of investment strategy Leo Krippner says despite the ongoing credit crisis, global shares are starting to look attractive.
"With the prices having been pushed down as low as they are, the price to earnings ratios look like they are good value. Even with all the global volatility and concerns about the US, they are now looking better value than before."
As for New Zealand shares, he says AMP began to increase its holdings back in May and June.
"We thought the outlook for New Zealand shares was worse than global shares - and they certainly were for the first half of the year. But once the situation had improved - the Reserve Bank had room to move on its ratios, the tax cuts were announced - we began to increase them again."
While the recent volatility in the markets can be worrying, Krippner says sharemarkets are always going to go up and down.
He says investors should also think about the fact that all the volatility is pushing prices down so it's probably a good time to think about buying them.
That comes with the caveat to never put all your eggs in one basket. "Don't throw all your money in or take it all out. Not even market professionals can time it right."
ABN AMRO Craigs' head of research Mark Lister says he is still cautious about shares and recommends investments are only made in good quality companies.
For the last 12 months he has been focusing on companies that are simple and easy to understand - solid defensive-type businesses like Woolworths, Contact Energy, Trustpower and Ports of Tauranga.
"All those defensive stocks have held up quite well during the turmoil."
He says investors should look out for companies with a quality management team who have been through tough times before and those which have a good dividend payout.
"If the dividend is still coming in you can almost afford to ignore the share price volatility."
But he also warns to stay away from companies that are highly leveraged or have a lot of debt compared to their equity and those in the financial sectors.
