Alan Clarke: Prepare for downhill slope

The Christchurch rebuild is expected to slow over the next two years.

Ideally, we would all be able to pick the top of a boom and then cash in some of our investments. And then we would be able to pick the bottom of a slump, and buy/invest when things are really cheap.

Great theory, isn't it? Trouble is we can't do it with any degree of accuracy.

However, experts predict New Zealand's current (mini) boom is drawing to a close and could slow sharply by 2017 or 2018, thanks to falling dairy and log prices, rising interest rates and the Christchurch rebuild slowing.

So we should sit up and listen, and take precautions.

Start here

Very often people have too much invested in a single sector, so the obvious thing to do when prices seem good is to reduce our overweighted holdings.

Other sectors may be stagnant. Not necessarily cheap but not going anywhere much either.

And some may be in a "sunset" phase - likely to fall in future.

So first of all we can try to identify:

• What we could sell
• What we could hold till it rises
• What may never rise
• What may keep falling

Auckland property

If you have several Auckland properties, you might reduce your holdings by selling a house or two while prices are so (insanely) high. If you have a big Auckland property and are thinking of downsizing into retirement, maybe now is a good time to do so, but beware - don't sell until you know what your next home will cost.

Reduce NZ shares

NZ shares are up 65 per cent over the past three years, and nothing rises that fast for too long. If you have more than 10 per cent of your total assets in NZ shares, it is probably a good time to reduce down to 10 per cent.

Dairy farms

Farmers are getting $8.60 a kilo this year, but are forecast to receive only $5.20 a kilo next year.

May as well forget selling the farm for a good price for a while and wait for the next upward cycle.

Provincial NZ property

Property in most provincial towns in New Zealand has been flat, and probably will stay flat if the economy slows, so this is probably a hold.

Debt

Reduce your property holdings if you have serious debt as interest and mortgage rates are likely to creep up.

Sunset Industries

There are quiet a few sunset businesses about because of the internet and/or the big chains such as the Warehouse, Bunnings, Mitre 10, Warehouse Stationery and more.

If the economy slows, owners of some sunset businesses will have to close.

If that is you, plan ahead for the best exit you can -- when, how and at what price.

If you own commercial buildings that house small retail and office buildings, sell the building if you can, or ensure you can afford more vacancies -- especially in smaller towns, where vacant spaces are all too common.

Offshore shares

The world is still recovering from the Global Financial Crisis(GFC) and so probably has quite a way to go to a full recovery.

That should leave room for some growth in offshore shares, but you must take into account the fact that they have risen a lot already since the GFC.

Cash and currencies

Cash never hurts to have around if things are slowing

And if you plan travel, hold some offshore cash in Australian and US dollars, pounds and euros.

Bonds

Quality bonds are always a safe haven and will serve you well, especially if you buy when interest rates are in the upper half of their range. Junk bonds don't pay.

Diversify or lose

Don't delude yourself - it is unlikely that you can pick the best sector to be in consistently enough to win out.

In summary:

• Sell or reduce holdings in expensive assets.
• Hold stagnant assets if they look sound, provided you don't have excessive debt.
• Reduce excessive debt sooner rather than later.
• Keep cash in hand unless investments are really cheap.

Alan Clarke is a financial and retirement adviser and author. His second book, The Great NZ Work, Money & Retirement Puzzle, is available at www.acfs.co.nz Alan is an independent authorised financial adviser (AFA) FSP26532; his disclosure statement is available on request and free of charge.