Don't use short term funds to invest in long term investments

The Jacksons are a Dunedin family who have been transferred to Auckland for two years. They are dyed-in-the-wool Dunedinites and are certain they’ll go back.

They’ve heard about the big money people can make in the Auckland property market, and they want a piece of the action. They decide to sell their Dunedin place to buy a house in Auckland. Their friends tell them, “You can’t go wrong”.

So they sell their Dunedin property - and have $200,000 of their own money, plus a $300,000 mortgage to finance their new $500,000 Auckland property.

But when it comes time to head south again the property market is experiencing a down turn. They sell the Auckland house, but can only get $450,000. So after leaving with $200,000 they return to Dunedin with only $150,000. They have to raise another mortgage to buy in the area they left two years earlier.

The moral of the story? Don't use short term funds to invest in long term investments such as property or shares.