BA50 Talkers
The old cliché ‘safe as houses’ sums up neatly the certainty we feel about property. In fact the origins of this saying probably date back to the relative safety of investing in houses after the end of a bubble of railway investment in the 19th century.
Houses are tangible assets that accrue value and can command a regular income, through rent. But are they actually the best way to get a good return on our money?
Restrictions
Any investment comes with risks and rewards and property is no different. The price of property and rent can easily fall and sometimes a long-term view is needed to ride out rough conditions over a number of months or years.
Owning a property is not an investment that lends itself to being readily ‘cashed in’ as it can be slow to sell and a lot of cost and effort is required to manage property as an asset.
Property often recovers quicker than other parts of an economy, especially where demand outstrips supply, but it is important to remember that factors far beyond your control can impact upon your investment.
Alternatives and their restrictions
This Is Money reported the results of a study by finance services group True Potential, which shows that share investors will have seen a greater return on their money over a long period.
With shrewd reinvestment of dividends – £100,000 of equities taken out in 1985 returned a 9.9%-a-year income on overage over the period to 2014. Over the same time frame, properties delivered 5.7%.
That well-above-inflation return also means that shares earned more than simple cash savings accounts – although the price of that reward is the need for a degree of knowledge and the dedication to reinvest dividends.
Colin Beveridge, chief investment officer at True Potential, was quoted as saying: “UK equities produce a higher total return compared to cash and property. However, they do deliver a more variable outcome year on year. One of the benefits to be had from falling share prices is the ability to reinvest dividends at cheaper prices, which in turn drives a better financial outcome and preserves wealth in real terms.”
Shares though, like property, still require a long-term plan and a degree of patience while savings accounts can be even more restrictive than purchasing a property – with the need to leave accounts untouched in order to benefit from the highest level of interest. Individual shares are less likely to perform as consistently or predictably as property and, while bank lending for property has tightened up, interest rates on savings accounts remain very low.
Smart investment
The truth is that any investment has to be smart to deliver good returns. Patience, knowledge and a flair for investing in shares can, as we’ve seen, outperform properties when it comes to long-term returns. However, failure to make good use of dividends quickly sees the performance of this slip.
Whether you are purchasing shares, squirreling away cash in savings accounts or buying a property portfolio the investment you make has to be right for your circumstances. That means good returns at the right times, flexibility, a manageable level of risk and a host of other factors.
Quality
The right investment has to be well researched. That means picking out a fantastic home from the likes of FT Property Listings or putting your money to use in a strong performing corner of the market. Good quality investments – no matter what their type – will do well.
Getting your hands on good quality bricks and mortar remains a sound choice.
It delivers consistent, strong returns and, provided an investor has their eyes open to the costs and risks, can be lucrative. Safe as houses indeed.