Hi Guys
Regards
Pricking the 'property is best' balloon
28.02.2004
By MARY HOLM
Q. I applaud the growth of companies and technology, and think their growing popularity via the sharemarket wonderful.
However, companies, ideas, people, almost everything we care to think of gets outdated or ceases to exist at some point.
Property is a rare commodity that doesn't.
I'm not knocking sharemarket enthusiasm, as I, too, think it's super exciting, and am looking to get more involved.
BUT, I will always stick with an 80/15/5 per cent investment ratio, whereby 80 per cent is property, 15 per cent could be business and 5 per cent shares.
If I'm not mistaken, most of the richest people in the world use this sort of ratio. Why not follow their example?
It's wonderful to be optimistic about business performance in a rapidly growing market, but be wary of encouraging people to invest all or a substantial portion of their money in something they cannot see.
A relation of mine recently invested in some kind of building project fund and lost $400,000 within two weeks. Their retirement plans are probably destroyed.
So, as well as talking the exciting possibility of sharemarket dividends or the beauty of investments that one cannot physically see, mention a disclaimer that when dealing with large amounts of money, property has traditionally been seen as the safer bet.
A. Sorry, but you are mistaken.
It seems to be a common refrain that the very rich got rich via property. Where does it come from? Perhaps property seminars, or get-rich-quick books. If anyone has a credible, as opposed to a self-interested, source, I would love to hear about it.
In Forbes magazine's 2003 list of the world's richest people, Bill Gates, of Microsoft, is top. He's followed by American share fund investor Warren Buffett; German retailers Theo and Karl Albrecht; and Microsoft co-founder Paul Allen.
Then comes Saudi Arabian prince Alwaleed Bin Talal Alsaud. Surprisingly, his wealth apparently comes more from investments such as Citigroup shares, rather than oil - although I bet oil dollars helped him get started. Sixth is Larry Ellison of Oracle, and the rest of the top 10 are Wal-Mart heirs.
It would seem, then, that starting or running a software company, investing in shares, or running shops is the way to great wealth - rather than following a property-heavy formula.
That's not to say that many people don't get rich via property. But it's far from the only way. And it's true, too, that many ordinary New Zealanders who are never going to be anything other than ordinary, as far as wealth goes, have 80 per cent or more of their money in property.
You - and many others - seem to think there's something magic about the fact that we can see property, and that it will always be there.
So what? Your relatives' investment sounds like something I would classify as property. And it sounds horrendous. I don't suppose they would like to write to Money Matters, telling us more about what happened, to warn us all?
One of last week's correspondents is another example. She and her partner bought land only to find the quarry down the road was about to expand massively, sending the land value plummeting.
True, these are unusual stories. The vast majority of property grows in value over time, even if there are some periods of depreciation along the way.
In this sense, property is safer than shares. A much larger proportion of shares than sections will go down and stay down.
But it's a lot harder to spread your money over many properties, to reduce the impact of a bad investment, than it is to buy shares in many companies.
What's more, most property investors take out a mortgage, whereas most share investors don't. Borrowing - otherwise known as gearing - makes a good investment better and a bad investment worse. It raises the risk level.
So, while you're basically right when you say property is a safer bet than shares, undiversified geared property is not safer than diversified ungeared shares.
28.02.2004
By MARY HOLM
Q. I applaud the growth of companies and technology, and think their growing popularity via the sharemarket wonderful.
However, companies, ideas, people, almost everything we care to think of gets outdated or ceases to exist at some point.
Property is a rare commodity that doesn't.
I'm not knocking sharemarket enthusiasm, as I, too, think it's super exciting, and am looking to get more involved.
BUT, I will always stick with an 80/15/5 per cent investment ratio, whereby 80 per cent is property, 15 per cent could be business and 5 per cent shares.
If I'm not mistaken, most of the richest people in the world use this sort of ratio. Why not follow their example?
It's wonderful to be optimistic about business performance in a rapidly growing market, but be wary of encouraging people to invest all or a substantial portion of their money in something they cannot see.
A relation of mine recently invested in some kind of building project fund and lost $400,000 within two weeks. Their retirement plans are probably destroyed.
So, as well as talking the exciting possibility of sharemarket dividends or the beauty of investments that one cannot physically see, mention a disclaimer that when dealing with large amounts of money, property has traditionally been seen as the safer bet.
A. Sorry, but you are mistaken.
It seems to be a common refrain that the very rich got rich via property. Where does it come from? Perhaps property seminars, or get-rich-quick books. If anyone has a credible, as opposed to a self-interested, source, I would love to hear about it.
In Forbes magazine's 2003 list of the world's richest people, Bill Gates, of Microsoft, is top. He's followed by American share fund investor Warren Buffett; German retailers Theo and Karl Albrecht; and Microsoft co-founder Paul Allen.
Then comes Saudi Arabian prince Alwaleed Bin Talal Alsaud. Surprisingly, his wealth apparently comes more from investments such as Citigroup shares, rather than oil - although I bet oil dollars helped him get started. Sixth is Larry Ellison of Oracle, and the rest of the top 10 are Wal-Mart heirs.
It would seem, then, that starting or running a software company, investing in shares, or running shops is the way to great wealth - rather than following a property-heavy formula.
That's not to say that many people don't get rich via property. But it's far from the only way. And it's true, too, that many ordinary New Zealanders who are never going to be anything other than ordinary, as far as wealth goes, have 80 per cent or more of their money in property.
You - and many others - seem to think there's something magic about the fact that we can see property, and that it will always be there.
So what? Your relatives' investment sounds like something I would classify as property. And it sounds horrendous. I don't suppose they would like to write to Money Matters, telling us more about what happened, to warn us all?
One of last week's correspondents is another example. She and her partner bought land only to find the quarry down the road was about to expand massively, sending the land value plummeting.
True, these are unusual stories. The vast majority of property grows in value over time, even if there are some periods of depreciation along the way.
In this sense, property is safer than shares. A much larger proportion of shares than sections will go down and stay down.
But it's a lot harder to spread your money over many properties, to reduce the impact of a bad investment, than it is to buy shares in many companies.
What's more, most property investors take out a mortgage, whereas most share investors don't. Borrowing - otherwise known as gearing - makes a good investment better and a bad investment worse. It raises the risk level.
So, while you're basically right when you say property is a safer bet than shares, undiversified geared property is not safer than diversified ungeared shares.
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