Property investment snakes and ladders
Start a conversation with family or friends about planning for retirement and usually property plays a key part of their retirement plans, and quite rightly so. However, care needs to be taken that the ‘property blinkers’ are not put on and we can see past our own four walls when planning for old age.
When the property market was roaring, using property as a fundamental part of a retirement fund was a fashionable choice for some. Unfortunately, once the prices started falling, the risks involved in that strategy became all too apparent.
Yes! Property is a good investment
Nevertheless, many property owners and would-be investors have such strength of belief that property is their salvation, interjecting with an alternative opinion is almost impossible.
For the record, Guardian Wealth Management is not anti property.
Ask one of our advisors if you should have property investments and he or she will shout back a resounding ‘Yes!’
Ask the same advisor if property should make up all or the bulk of a portfolio and the answer will be a resounding “No!”
Our argument against wearing property blinkers is clients cannot see other opportunities if they are dazzled by potential property profits.
Every experienced investor knows you have to hedge your bets and that means relying on a spread of investments that have different levels of risk and return.
Bricks and mortar
If you are looking to invest in property, it’s important to remember that you are not limited to your own home.
If you have the funds available or are able to take out the right mortgage, then buy to let (BTL) could be an option. Some people may already have BTL properties and, just like with any investment, it is important that you review the income and growth potential against any outgoings to ensure it is still worthwhile.
One of the main problems with owning ‘bricks and mortar’ is that it can be ‘illiquid’ – namely it can take a while to sell, so is not very convenient if you need to get to your money quickly. You are also at the mercy of buyers who can change their mind or offer less than the asking price.
Unfortunately, it can be a very high-risk strategy to invest in residential bricks and mortar alone as your sole investment to fund retirement. As with all investments, it is risky to put all your eggs in one basket. It is important to work with your financial adviser to take a broader approach to your investments and build a diversified portfolio that matches your attitude to risk.
If an investor is looking to benefit from the diversification that property can add to a retirement planning portfolio, it might be worth considering property funds.
There are different types of funds available. Some funds invest indirectly into property, by buying shares in companies that themselves physically buy or build property. Other funds invest directly into property by buying commercial property such as office blocks and shopping malls.
It is worth pointing out that the value of commercial property behaves differently to residential property, and can fall significantly in value in bad times as well as potentially doing better than residential property in good times. That said, for people looking to include property as part of their retirement planning, and for younger people who can’t afford a deposit, these funds do offer an affordable option. Some of these funds can even give access to commercial property and property shares globally, potentially diversifying a portfolio further still.
There are, however, a couple of things you need to bear in mind. Firstly, the value can go down as well as up. Secondly, fund managers can temporarily suspend the fund while the value of buildings are realised in order to meet withdrawals. In that instance an investor’s money is temporarily ‘locked’ in the fund.
Whilst it is achievable to diversify within property types, and at the same time have various options in which to access property for retirement planning purposes, you should also make sure you consider how much you are diversified with other investments.
Guardian Wealth Management advisors help clients tailor a strategy to meet their goals and budget.
The other important factor about investment strategy is maximising fund growth and income while paying less tax.
Do not forget investment also involves estate planning as a tool for your family and loved ones to pay the least tax possible when you pass on.
Guardian Wealth Management will look at the whole of your retirement and savings plans and not just investments in isolation. This is why we talk about ‘wealth management’ and not just financial advice. Wealth management involves savings, investments, pensions and tax all rolled up together and as an independent company, we can search the whole financial market for the best investment, pension and savings products to suit individual needs.