My first BMX bike in 1983 was ‘The Boa Constrictor’. It was a beast of a machine, all chrome and adrenaline. I was Evel Knievel, tearing down suburban streets listening to ‘The Police’ on my Sony Walkman. And no, all without a helmet—because, well, the ’80s.
One day in early spring with snow and gravel on the road still, I got distracted by a car coming the other way. Panic surged through my veins. I swerved, lost control, and went flying. The next thing I remember, I was picking stones out of my skull for weeks. That BMX crash was my earliest lesson in risk-taking. Thrill-seeking had a price to pay occasionally.
With investment return also, sometimes you get risk..
Investing, too, has its thrills and spills. Whether shares, property (even just your home), and definitely crypto, there’s a rush—an exhilaration that comes with the your returns, especially if you took some risk to get it. But occasionally, dare I say even cyclically, the market serves up a reality check. A tumble. A lesson to remember.
With returns, comes risk. It’s the unwritten contract of investing. When we chase high returns, we’re strapping ourselves in for the ride. But sometimes, even the normal twists and turns can catch us off guard.
Persistently high mortgage rates are starting to show up in defaults data. Here in NZ, with about 500k Kiwi’s behind on their loan repayments. Property prices have fallen, especially when measured against monetary inflation, but it could be a lot worse (especially if interest rates stay higher for longer). Unemployment is still holding up but only just. Anecdote stories are picking up of mass redundancies in the pipelines. This could worse in an instant.
With the S&P 500 reaching all time highs and a property market that may be down, but not out, it’s no so bad you say? True. We may indeed be living in risky AND rewarding times.
Considering property: For those who believe (as I do) that borrowing to buy property is a valid investment tool, we’re in the classroom again. We had an amazing run when the market should have crashed, but now we’re paying the piper. As property values soar, so does the gamble. Rewards and risk can occur in cyclical patterns, but it’s seldom a straight line—it’s jagged, unpredictable, and occasionally it’s a secular change (like what if instead of falling rates for 40 years, we have rising rates for 40 years?). This is where the real education starts.
About 12-18 months after the central bank raised the OCR (official cash rate), property owners felt the squeeze. Mandated renovations, punitive tax treatments, tighter credit access, and higher interest rates—all part of the curriculum. We’re learning that sometimes the path forward isn’t a steady climb; it’s 2 steps forward, 3 back, then 5 forward, then 6 back, then 9….
And here’s the fascinating part: The riskiest parts of the investable universe also testify to what comes next. It was crypto first, and now tech stocks. What if property is on the cusp of super-normal returns? Perhaps the difficult times we’ve recently gone through (risk) is a sign of something more amazing to come?
Whether you’re into just property or investing more generally, remember this: risk and return are correlated. Sometimes they take turns leading, and other times they ride side by side. The ride is always worth it in the long run—even if occasionally you’re picking stones out of your metaphorical financial skull.
