The economy is moving gradually into a new cycle. The coming years should see greater economic stability and more prosperous markets, judging by historical trends and the relative optimism of recent economic forecasts, so what should you be investing your money in to secure that golden future?
For fifty years or so most people would have strongly advocated shares. Returns on shares, for example, over the fifty years preceding 2009 would have gained you approximately a 5.2% return every year, according to lovemoney.com – turning an original £1000 investment back in 1959 into £12,612 in 2009 – and that’s just with a tracker fund (one which follows the overall progress of the stock market). A much higher return than that could be won by a savvy and more selective investor.
Today’s market is different, however, and there are now a lot of reasons why property should be considered a safer, more reliable, but equally profitable investment for an intelligent investor. Certainly, the end game for most investors must be financial independence, not wild riches, and property provides the realistic means to achieve that. Here’s why:
- With the stock market, every investor knows the market price for any given share at all times. The sharing of information makes the market effectively almost ‘perfect’. Thus, however clever an investor you are, you cannot buy a share for less than the next man.
Property, contrastingly, is anything but perfect. Investors can buy a property for 15%, 20% or more below the market value, because contacts, information and personal expertise can give you an advantage in an imperfect market.
- By investing in stocks you leave the growth of your wealth up to a market over which you have no control. Whatever you do, the price of those stocks will rise and fall regardless.
With property, you add value by renovating and adding to it. The market value of your property investment is directly relatable to the amount of work, effort and expertise you put into it.
- Perhaps most important of all is the volatility aspect. Shares are somewhat volatile investments with greater liquidity, whilst property is an illiquid asset but relatively stable in comparison. Referring to our earlier example, two entire decades of those fifty years, 1969-79 and 1999-2009, would have recorded average year on year losses of 2.3% and 1.2% respectively if that £1000 had been invested in shares.
Property, if left completely alone, un-renovated and not including rental income, would only have decreased during the period 1989-99 and then only by -2.4% on average year-on-year. When you factor in the increase in value through renovation and the money brought in through rental incomes, even this is largely nullified.
Historically, well located properties are shown to double in value every 8 to 10 years on average (smartcompany), showing the potential for well placed investment to accrue attractive levels of income. But it doesn’t have to be a buy to sell approach applied, many invest in property to benefit from a reliable rental income stream, a useful dependable income in uncertain times.
Property therefore provides an opportunity to invest in an imperfect market governing one of life’s fundamental requirements. Everyone needs a roof over their heads, resulting in a market that is an enduring facility for investors to make money and secure a financially independent future. Certainly, if you have capital to spare and are looking at investing, property could be the market for you.
25-08-11