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Many happy returns
Article from: The Sunday Mail (Qld)ent
Noel Whittaker
September 02, 2007 12:00am
WE ARE living in interesting times. Property and share markets are all over the place, and confusion reigns as investors consider playing it safe with cash.
Cash is fine if you have a two or three-year term in mind, but over the long haul you will get much better returns from property and shares.
Furthermore, the bulk of the returns from these two asset classes come by way of capital gain, which is not taxed until you cash them in. This makes them far more tax effective than interest-bearing accounts.
It is a fundamental principle that you should spread your growth assets between shares and property, but they are assets that behave very differently.
Savvy investors will recognise and use these differences. I have long advocated that buying a home to live in is the best way for most people to start, because it provides security of tenure, free rent, and an asset that is free from capital gains tax. It also enables the DIY enthusiasts to turn their spare time into tax-free dollars by renovations and refurbishment.
The big decision comes when you have the mortgage on your home under control. My preference is to think about share-based investments – this will provide diversification and give you invaluable experience about the volatility of the stockmarket.
Often novice investors are terrified of shares because they know nothing about them, and may well come from a background that regard investing in shares as akin to having a flutter on the race track. Fortunately, for the inexperienced, there are share trusts where the investment decisions are made by professional fund managers. However, if you believe these are right for you, make sure you talk to a licensed financial adviser.
There are thousands of products out there, all with varying degrees of risk. A good adviser will help you choose one that is appropriate for your risk profile and your goals. Share-based investments have some valuable advantages over property. The first is liquidity. If you want to sell your shares, all you have to do is call your broker, find out what buyers are offering, and say sell.
Contrast this with the hassles of selling a property. Phone up three agents, receive a range of prices that may well be 20 per cent apart, then wait until you find a willing and able buyer. You will probably find that it is worth at least 10 per cent less than you hoped. If you are lucky to find a buyer quickly and the contract doesn't crash, you may have the money within three months.
You can always sell a small parcel of shares, but if you have a property, you cannot sell just the back steps.
Usually, there is more potential for capital gain when you buy shares because an increase in a particular share's price should track increases in the company's profits. As a growing company has the potential to increase its earnings by 20 per cent, 40 per cent or even 100 per cent in a year, so does its share price. Property can't do this.
You can't buy an investment property in most places for much less than $300,000, but a person with $300,000 to invest may buy $10,000 worth of shares in 30 separate companies. For those who are starting off, an investment of as little as $1000 into a share trust may provide a spread of more than 50 companies in a range of industries. Provided you don't get spooked when the market goes through one of its normal gyrations, shares are the simplest investment of all to manage.
You won't be called out of bed in the middle of the night to attend a burglary, you won't have to go to court to evict recalcitrant tenants, and your budget won't be shattered with huge bills for land tax, rates or repairs.
But none of the above is intended to denigrate the unique benefits of real estate. A good block of land will last forever. Property gives you the opportunity to add value by rezoning or refurbishing.
In short, investors should have both asset classes in their portfolio and make the effort to utilise the unique benefits of each. Do this and the rewards over the long term will astound you.
Noel Whittaker is a director of Whittaker Macnaught, a division of HBOS Australia. This advice is general in nature and readers should seek their own expert advice before making financial decisions.
Article from: The Sunday Mail (Qld)ent
Noel Whittaker
September 02, 2007 12:00am
WE ARE living in interesting times. Property and share markets are all over the place, and confusion reigns as investors consider playing it safe with cash.
Cash is fine if you have a two or three-year term in mind, but over the long haul you will get much better returns from property and shares.
Furthermore, the bulk of the returns from these two asset classes come by way of capital gain, which is not taxed until you cash them in. This makes them far more tax effective than interest-bearing accounts.
It is a fundamental principle that you should spread your growth assets between shares and property, but they are assets that behave very differently.
Savvy investors will recognise and use these differences. I have long advocated that buying a home to live in is the best way for most people to start, because it provides security of tenure, free rent, and an asset that is free from capital gains tax. It also enables the DIY enthusiasts to turn their spare time into tax-free dollars by renovations and refurbishment.
The big decision comes when you have the mortgage on your home under control. My preference is to think about share-based investments – this will provide diversification and give you invaluable experience about the volatility of the stockmarket.
Often novice investors are terrified of shares because they know nothing about them, and may well come from a background that regard investing in shares as akin to having a flutter on the race track. Fortunately, for the inexperienced, there are share trusts where the investment decisions are made by professional fund managers. However, if you believe these are right for you, make sure you talk to a licensed financial adviser.
There are thousands of products out there, all with varying degrees of risk. A good adviser will help you choose one that is appropriate for your risk profile and your goals. Share-based investments have some valuable advantages over property. The first is liquidity. If you want to sell your shares, all you have to do is call your broker, find out what buyers are offering, and say sell.
Contrast this with the hassles of selling a property. Phone up three agents, receive a range of prices that may well be 20 per cent apart, then wait until you find a willing and able buyer. You will probably find that it is worth at least 10 per cent less than you hoped. If you are lucky to find a buyer quickly and the contract doesn't crash, you may have the money within three months.
You can always sell a small parcel of shares, but if you have a property, you cannot sell just the back steps.
Usually, there is more potential for capital gain when you buy shares because an increase in a particular share's price should track increases in the company's profits. As a growing company has the potential to increase its earnings by 20 per cent, 40 per cent or even 100 per cent in a year, so does its share price. Property can't do this.
You can't buy an investment property in most places for much less than $300,000, but a person with $300,000 to invest may buy $10,000 worth of shares in 30 separate companies. For those who are starting off, an investment of as little as $1000 into a share trust may provide a spread of more than 50 companies in a range of industries. Provided you don't get spooked when the market goes through one of its normal gyrations, shares are the simplest investment of all to manage.
You won't be called out of bed in the middle of the night to attend a burglary, you won't have to go to court to evict recalcitrant tenants, and your budget won't be shattered with huge bills for land tax, rates or repairs.
But none of the above is intended to denigrate the unique benefits of real estate. A good block of land will last forever. Property gives you the opportunity to add value by rezoning or refurbishing.
In short, investors should have both asset classes in their portfolio and make the effort to utilise the unique benefits of each. Do this and the rewards over the long term will astound you.
Noel Whittaker is a director of Whittaker Macnaught, a division of HBOS Australia. This advice is general in nature and readers should seek their own expert advice before making financial decisions.
