Mary Holm takes us through property investment 101...
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Mary Holm sets us right...
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"I should add here, though, that it's easy to diversify shares and diversification is automatic in a share fund. Given that diversification reduces risk, a share fund might be less risky than a single rental."
over the last 10 years 50%? of the people who put into a share fund are probably lucky to have what they put in...
over the last 10 years 99% of the people who bought a single rental have probably at least doubled their money...
she talks in this abstract world of theory that seems to deny that the GFC hurt nz shares badly
but left property largely alone
fine if you can eat theory
i prefer profit
eroles
Last edited by eri; 19-04-2011, 12:28 AM.have you defeated them?
your demons
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Eri, you would hope your share fund(s) portfolio do invest in more then NZ shares... that's where the diversification come from.
And, really, I would suggest that we probably don't want to use the last 10 years as a general guide when it comes to property investment - It's quite difficult not to make money if you bought property in 1997 and then sell in 2007. Hindsight is always 20/20.
As much as I like property investment, she does have a point especially regarding diversification: how many people you know buy properties in the same city or even the same street? Or people who go for one big deal, then hanging on barely making the ends meet? What if your one magic deal of a lifetime happened to be in Christchurch? That's where the ease of diversification with share funds becomes quite attractive.
Having said that, people who have no understanding of risks will always put themselves in harms way I suppose, no matter how "safe" a particular class of asset is deemed to be.
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Well I guess if what you want to do is reduce risk then diversifying can't hurt.
Thing is, you'll never really make any money that way. The ones that go downwards will balance out the ones that go upwards and you'll make nice steady gains. But to make any serious money, you have to pick one (or maybe a few) investment areas any make them work.Squadly dinky do!
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Originally posted by eri View Post"I should add here, though, that it's easy to diversify shares and diversification is automatic in a share fund. Given that diversification reduces risk, a share fund might be less risky than a single rental."
over the last 10 years 50%? of the people who put into a share fund are probably lucky to have what they put in...
over the last 10 years 99% of the people who bought a single rental have probably at least doubled their money...
(NZ index fund) TNZ 90c -> 89c (plus divs) http://www.google.com/finance?q=NZE%3ATNZ
(Oz index fund) Ozy 2.54 -> 3.90 (plus divs) http://www.google.com/finance?q=NZE%3Aozy
(Global index fund) Win 1.91 -> 1.11 (plus divs) http://www.google.com/finance?q=NZE%3Awin (note - I note sure whether this is hedged or not so the move in the forex rates is probably largely to do with the drop so the same would be the case if you held global property)
So not great unless you invest into Australia. but very easy to buy and sell. Can leverage up using margin lending or loan secured againsts PPOR. no holding costs, minimal buy sell costs, can add or subtract in small parcels. I think you can even do monthly automatic deposits with these index shares through NZX (???)
So houses:
Leasehold Auckland Apartment $300k -> $150k (plus rent) www.madeup.com (<- just in case you didn't figure out, these are made up web addresses so dont click on)
Leaky building $300k -> $150k (plus rent) www.madeup.com
B&T 4br in upcoming suburb $300k -> $600k (plus rent) www.madeup.com
again, not great unless you bought well. but have to leverage up, buy and sell costs, holding costs, limited market for the leaky building so hard to sell, even at a loss.
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Davo36>>
Yes, diversification decreases your potential return while reducing risk; but this is not a game of black vs. white, surely you can mix and match to create the kind of risk profile which suits your appetite of risk. Otherwise, if you are simply chasing the biggest return with the biggest risk, you might as well buy lotto :P
Using more realistic example: if you feel that the risk profile of an ordinary share fund is just too "flat", you could choose to buy hedge funds or even buy pure shares directly... which if you make the right call will earn you A LOT of money. The same thing with property really, the only difference is that you can buy shares without proving your financial fitness to the bank, and that it is a "real asset" so in theory should be a bit better at fighting inflation even if you unfortunately make a mediocre buying decision (given enough time anyway).
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