The wisdom of 'buy, hold and never sell'

An aspect of human behaviour know as short-termism has increased in severity in the years since the turn of the millennium. This is where we opt for chocolate and beer over long-term good health, complain about plastic bag bans instead of considering the long-term benefits to our oceans, and splurge on those must-haves instead of saving and investing. We are often compelled by flashy ads and doom-sayers to maximise profits in the short term regardless of the long-term consequences.

Before embarking on an investment journey it is essential to work out what your goals are. Are you investing for growth or income, or both? Do you want to raise capital? Would a long-term strategy be the best fit for you?

If you’re looking for long-term growth to help with your lifestyle in retirement, then a buy and hold strategy is the optimum way to achieve that result. It is also the most suitable one for passive investors who have a full-time job and are quite busy in their day-to-day lives. Flipping property, where you purchase, renovate and sell within a short timeframe, requires a lot more involvement from the investor. It also incurs quite high transactions costs and the need to pay capital gains tax and stamp duty again on the next property — and that’s a whole lot of bikkies.

Even though the number one principle of property investment is to hold your property long term, you may find it difficult for two reasons:

  • Your asset has performed poorly in the beginning as the market had moved backwards and you are tempted to cut your losses
  • Your asset has performed reasonably well in the beginning and you are tempted to cash out and go on an overseas holiday or buy a new car.

While it may be challenging to hold your asset long term due to personal circumstances, the longer you are able to do so the better off you will be. Property markets are cyclical and there will be periods when prices stagnate, correct and boom; by holding on to a property you will ride the waves and benefit from experiencing as many booms as possible in the cycle.

When it comes to risk management, buying and holding is safer in that over time capital growth will outstrip any debt you have on the property and it will begin to provide equity. Capital growth has a compounding effect, so growth is geometric rather than linear.

Buying and holding does require time: you will not see the fruits of your investment for around ten to fifteen years. Also, as a property ages it will require more maintenance and repairs, which you need to factor in your budget.

The most important thing is to keep your head during euphoric periods where market sentiment is positive and strong growth is achieved ― and not be tempted to sell; and also during periods of stagnation where growth is subdued due to external factors ― and not be tempted to sell!

Because good assets will always eventually go up in value, it is far better to hold for the long term and never sell if at all possible. They key words here are: ‘good asset’, that is, a property bought in a market where yields enable you to minimise costs and that is less susceptible to the risks of volatility in vacancy and yields.

Knowledge and education are critical to your success, so you need to have a professional team behind you to assist with advice on the best markets in which to purchase and then through all of the ups and downs.