No thanks I Invest in Property…..

“Compound Interest is the eighth wonder of the world, he who understands it earns it, he who doesn’t pays it” (Albert Einstein)
The third quarter has now been and gone. Quarter four is historically the most fruitful  for investors. We often see larger volumes being traded and whenever the S&P 500 has been up in August and September, 81% of the time the fourth quarter has followed suit

So should the trend be your friend? 

Lets look at the data for September and the year so far:

                              Sep                      YTD

Dow Jones             +0.5%                  +13.4%
Nasdaq                   +1.8%                  +20.7%
FTSE                      +0.5%                   +1.3%
Dax                         +7.4%                   +11.7%
Nikkei                      +5.1%                  +6.5%
SSE                          -0.5%                  +7.9%

So with the exception of a small pull back in China, a positive month all round in what is often a challenging one.

In fact positive markets have been the theme all year and I see no reason why it will not continue. The old adage “sell in May and go away and don’t return until St Leger’s day” (16 September) would not have done you any favours this year with the World MSCI moving up 7% during that time.

On the currencies, as expected we saw the US Dollar start to claw its way back except against the British pound which had a nice little surge this month….so the USD performance…

                                  Sep                         YTD
GBP                          -3.7%                       -8.5%
 EUR                          +1.3%                     -12.2%
JPY                            +2.4%                      +1.6%
CNY                           +0.6%                      -4.6%
AUD                           +1.7%                      -8.7%

I would expect these trends to continue with a strengthening USD and GBP and perhaps the Euro coming off a little more.

Most people understand that when it comes to building up your wealth and ensuring that you are comfortable having some diversification is key. The most common objective I hear when trying to gain new clients is “I invest in property”

No one is denying that property investing is a very sound way to grow your wealth, in fact as part of your overall portfolio you should definitely own some. There is a comfort in having something tangible but investing in property and investing in the stock market are different but both vital to having a balanced portfolio of assets.

Property is not liquid like shares, it is a much longer term commitment and often requires a lot more of your own time and energy to make it work.

And what about the returns?  The average house price in the UK ten years ago was GBP188,691 according to the Office For National Statistics. Today it is GBP223.800, around a 19% gain. UK property generally yields you around a 4% return if you are renting it out so from a pure investment play we could  so call the overall return around 60%.

Compare this with one of my favourite funds, Lindesll Train which has returned its investors 403% in the same period. One of the main factors to this growth is the compound effect and reinvesting of dividends.

Property is less volatile and I understand the psychological comfort in owning something  tangible. Successful property investors will also point to the fact they have returned much better than 6% per annum, one area stocks and property are similar is selecting the right areas to invest in.

Regardless of its virtues though, owning only property is the proverbial eggs in one basket.

Diversification is important but as the great Warren Buffet says, it is “protection against ignorance”,.

I rarely buy shares in property owning companies, suggesting physical property instead as a way of diversifying.

It is a difficult balance to strike between having enough variety of asset classes to spread your risk and too many which impedes your growth. We’re here to help with that…..

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