There are many ways you can invest your money to try and make a return. Some people don’t like taking risks with their hard earned money and won’t look any further than cash based accounts. Those that do like to take risks with their money can usually be split into two different categories; those who buy property and those who make investments.
The factors that decide which of these two categories people fall into are usually down to psychological factors such as their own knowledge of the markets, the articles they read, the television shows they watch, their past experiences and the success that their friends or family have had.
What should really determine which category they fall into are things such as the level and type of risks they are willing to take, their employment status, their income, their overall wealth and their future plans and goals. These are the real factors which should lead the way when making decisions.
There are dozens of pros and cons with both options and it can sometimes be hard to gather all of the information and work out which way is right for you. I think the best place to start if you are looking to buy a house as an investment, is to ask ‘what if the worst happened?’ type questions. Questions such as, ‘How could you cope if the tenant didn’t pay their rent for three months, then it took another three months to get them evicted, you have to pay to redecorate the property, advertise it and then wait another 3 months to find a new tenant?’. You need to think about whether it is the right time in your life to be taking these sorts of chances. If it isn’t the right time, you need to be looking at your other options.
One alternative is to invest into a property investment fund. That way your money is invested into a fund which owns a selection of properties. The risk of losing rental income from your own and only property is removed, and therefore doesn’t impact on your standard of living. There are different risks involved, and the potential rewards may not be as high, but it may be a more suitable route to invest for you depending on your own personal circumstances.
If this did sound like a more favourable option, I would usually recommend not only to invest into property funds, but a selection of different types of funds which include property, shares, corporate bonds, gilts and other asset classes.
A balanced investment portfolio should be spread across many different assets, asset types, geographical locations and business sectors in order to spread investment risk. By investing into assets held in different countries, you reduce the risk of suffering large losses due to one country’s economy declining. This risk can only be reduced by diversification but not eliminated, as global economic crisis can affect every country in the world.
The added benefit of investing into funds, is that you can hold the funds within stocks and shares ISAs, so the income and capital gains are tax free.
Kieron Bassett Financial Services has two Independent Financial Advisers who specialise in mortgages and investment advice. Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or visit www.kieronbassett.com.
Jason Hinde CertPFS
14th April 2014
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