Guiding consumers since 2009

What goes up comes down

By Staff Writer

The market is a cyclical thing. It goes up and down flexing its ability to leverage nominal value away from actual value. Like the difference between you buy your brand new car and when you turn it on and drive it 5 kms. It may have already lost 30% of its nominal value and is now closer to its actual value. As the market goes up nominal value is inflated. When it comes down actual value is eroded. So how do you temper these effects?

 

  • Get out your budget planner
  • Be realistic about assets
  • Rather buy real things

 

At the top of this last market the nominal value was massively outstripping the actual value, and as all things that go up come down, the nominal value of things may well be below the actual value of the things that the value is meant to represent. So be sensible with what you buy, rather buy real things that lock their value in. A car is not an investment it is either a liability or a tool. If it is generating money to pay for itself you are using it as a tool, otherwise you are throwing money after nothing!

Until an asset is paid for it is actually a liability. That means if you are paying off your house don't think you are a millionaire just because it is worth more than one bar. It is a liability until you have paid it off and should be viewed as such. So always make sure you know what is in your budget and what you are spending on. The market will go through many more cycles in the foreseeable future and the best way to smooth them is to not chuck money after unreal values and rather put your cash into real things that hold value over time.

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