The Motley Fool

The next bull market, off and running

You know that wall of money, and that injection of confidence into the Australian economy I’ve been talking about?

Not surprisingly, it seems to have first made it to the stock market, the S&P/ASX 200 index jumping higher again today, back above the 5,200 level.

Could our share market be about to hit a new high for 2013? The Age certainly thinks it’s within sight….

ASX 200 heading to new 2013 high

A number of prominent commentators have already been suggesting this could be the start of the next bull market.

As a reminder, Bell Potter’s Charlie Aitken is targeting ASX 6,000 in the next 12 to 18 months.

If they’re right, now could be a great time to put money to work in the stock market.

It’s a property stampede!

You’ll already be aware, with interest rates at record lows, shares are not the only hot asset class…

Property stampede
Source: The Australian
Would you buy property for the low, low, ultra-reasonable price of $40,000 per square metre?
Or pay $1 million for a small one-bedroom flat?

Me neither. It boggles the mind.

These price tags aren’t hypothetical.

A couple of weeks ago, at Sydney’s Barangaroo development, at these very prices, some $300 million worth of apartments sold out in just over three hours!
(The kicker is, these apartments won’t even be fit to live in until late 2015.)

It’s not just prized Sydney real estate, either. More generally, Australian property is catching fire.
With interest rates at a low, the punters are piling in. Property prices are shooting skyward.

Some of the SMSF army are surely among these buyers. Speaking for myself — paying $40,000 a square metre is just too rich for my blood.

I’m sure I’d enjoy the lovely water views, but I’m simply too wary of the run-up in property prices… how real estate is quickly becoming the asset class du jour.

All right, you can call me a contrarian. I’m aware many Australians consider property a sure thing. Still, I’m not the only one with open eyes.

Even looking beyond the $10 million penthouses filling our headlines — overall Australian property prices are on track for 6% gains this year, according to analysts’ data.

Some analysts are even calling this a “property bubble” and a “housing boom.” And you and I both know what follows bubbles and booms…

Blame it on the cash rate? It’s a house price BOOM

Surely the reasons why property as an asset class is so popular just now are easy enough to pick out…

First, term deposits are a lousy spot for your cash and mine. The best we can hope for is less than 4%! It’s completely understandable we investors are on the prowl, looking for more…

Second — and far more important when it comes to YOUR money — some ASX investors have been scared off stocks by all the volatility in the share market.

(In just a moment, we’ll take a look at the upside of volatility – and why, in fact, it’s the Foolish investor’s best friend!)

The Australian Financial Review recently summed up the problem neatly…

Property has been…

“attracting the attention of investors put off volatile equities and low-yielding cash.”

Commentator Christopher Joye put it more colourfully…

“Blind Freddy can see we are embarking on a housing boom. Where else are savers going to stash their money with the cash rate at 2.5 per cent and the most attractive term deposits offering a miserly 3.9 per cent?”

Even the election put off these house-mad punters

No one will debate his point about term deposit rates. “Miserly” is right. And there’s most definitely a housing boom on.

Even the election didn’t put off buyers. Despite ample historical precedent… there was no slowing of the property market in the run-up to election day.

Stock market volatility is an entirely different question!

And sadly misunderstood by a crowd of ASX investors who could actually profit from market dips — including you.

What you don’t realise about volatility may be hurting your returns

Despite the ASX again crossing the 5,200 mark, some scared investors still prefer the so-called safety of term deposits.

I don’t mind saying it: These investors are doing themselves a disservice.

They’ve given into fear, scared of nothing more than volatility.

But there’s no need to be fearful of fast moving share prices.

Think about it this way…

If you had fallen asleep from the end of May through the beginning of August, you’d never realise the S&P/ASX 200 index had dipped to 4,650 during the time you’d been sleeping.

You’d only see today’s 5,200, give or take a few points.

How good is that? Making money while you sleep!

Of course, you’d also have missed the chance to buy some of Australia’s best companies during the short-term pullback. And that’s the point I was making above…

Buying on dips? That’s a punt I’ll gladly take

Good companies at good prices are what we look for as Foolish, long-term investors. Overpriced property, not so much!

Foolish investors, volatility is our friend.

The downward swings present buying opportunities.

The upward swings mean we can take our profits or simply watch our money grow, smiling, from the sidelines.

It’s the best of both worlds.

And it’s why I find stock market investing so interesting, rewarding and addictive.

You can’t say that about bricks and mortar.

The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get 3 Stocks for the Great Dividend Boom in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

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