It’s not whether to invest, but where to invest which is often the question...
In the market place today, most of us are aware of the need to address our future financial security by investing in asset based, cash or capital growth producing venture of some kind. However, I often find that first time or inexperienced investors are uncertain about how to determine where to invest their hard earned dollars. Which is understandable because investing is a serious matter with far reaching implications and financial ramifications into the future.
On the other hand, the general public has a vested stake in the investment markets, and this has created a great deal of interest, speculation and concern. The media continually hypothesise and debate the topic, particularly focusing on which of the asset sectors is the most profitable form of investment. The constant comparing of the various asset sectors has made investing seem like a daunting task, leaving the average first time investor feeling overwhelmed and confused.
However, the truth is that inexperienced investors should not get caught-up in the debate over which asset class is better, as each has its advantages and disadvantages. Furthermore, they each have different risk and return profiles and their performance is determined and measured by completely distinct factors.
Take for example the discussion around property and shares. Residential property values are primarily affected by the market forces of supply and demand, with some sway from the domestic economy. We all need somewhere to live, and the amount of suitable land is finite, so residential property essentially commands a built-in value.
Alternatively, share values are highly liquid parcels of a company, and to some extent company performance, market sentiment, and their relative scarcity determine their value. When a company is performing well and investors are confident about the economic outlook, share prices generally rise; when a company is performing poorly, share prices generally fall.
This example illustrates that there is no definitive reason to choose one asset class over another. Instead, a more balanced approach that invests across the various asset sectors should be taken into consideration with your investment portfolio.
But for me, when compared with most other forms of investment, the property asset sector has a relatively high ratio between security and income yield. Other positive attributes of property investment include:
- Security-”Bricks and mortar” provide a certain sense of security, i.e. it is tangible.
- Control– You are not as dependent on the abilities and decisions of others, and you can choose the extent of your involvement and do as much or little as you like.
- Stability– Historically, the value of property has seen a gradual and steady upward rise and capital growth.
- Return on Investment– You can usually be assured of a steady annual return which is not subject to fluctuations in value to the same extent as some other assets.
- Demand – There is an ever growing demand for property because people will always need somewhere to live and our population is growing.
So it’s clear to see that property investment has positive and negative aspects. The drawbacks are considered to be the high entry and exit costs, and the perceived lack of liquidity. Others may consider these drawbacks to be actually advantages, contributing to a more stable and secure market as speculators may be deterred from the market, contributing to a more solid platform for investors.
Most importantly it’s vital to note there are ways to address these drawbacks and thus minimise their impact. For example, owning a property outright increases your borrowing potential and allows you the option of a credit line. This means that in cases of emergency, you have access to a liquid source of cash flow.
This is not to say that investing in property should be the sole option for everyone, but if you are informed and aware of your alternative choices and equipped with the necessary information, you will make better decisions. In addition to this, with greater understanding of the market you will also know the right questions to ask, and of whom, and how the property investment process works. Therefore making the whole experience more likely to be both financially and personally rewarding …and that is the result we all want.
If you are considering investing in property, give us a call today to discuss your options with a qualified Mortgage Broker, you’ll be glad you did.
To your investing success Champions,