Forget property and take stocks
Invest in the global market, not bricks and mortar
When I started in financial planning back in 1995, people would often say: ‘I’m buying property. That’s my pension.’
This went away somewhat during the financial crisis of 2008, partly because it was harder to arrange a mortgage, but also because the market became less attractive.
In recent months, however, we’ve seen a resurgence in property investing fuelled by the stamp duty holiday.
A good friend called this week to ask me, ‘Why do you always invest in stocks? Don’t you ever consider the property market?’
My answer was simple – no.
There are logical reasons why I believe equities make better investments than property, but we don’t buy with logic, we buy with emotions, justifying our decisions with logic that will back up the choice we made.
Recently, I spoke to a client who was boasting about a property he purchased for £80,250 in 2000.
Today, it’s worth £210,000, which is a gain of almost £130,000 (I’ll ignore the costs for now).
How does that 4.7% annualised return compare with the market, though? Back in 2000, if he’d invested his money in a straightforward world equity fund – not in Tesla, Microsoft or Rightmove – he would now be sitting on around £313,039. That’s over £100,000 more. When you buy the world stock market, don’t think of it as just buying a fund. Think of it as becoming a part-owner in some of the most valuable companies from around the world such as Apple, Microsoft, Exxon, Johnson & Johnson and Visa.
Which would you prefer: a rental property in your local town, or partownership of some of the world’s greatest companies?
You might be thinking, ‘Wait, you’ve forgotten about the rental income he receives’. And yes, this is generally around 3.5%, which is what my client’s property achieves in a lower risk family unit.
But this isn’t what he keeps. After deducting the letting agent fee, building insurance and tax, what’s left is just enough to keep the roof up.
Because, over a 20-year period, how much do you think he needed to spend on the house to keep it in good repair?
There would be the odd plumbing fix, a new bathroom and kitchen and let’s hope he didn’t need a new roof or major structural work.
My grandmother always said to me, “Warren, it’s not what you make that’s important, it’s what you keep.”
An £80,000 investment can be managed hassle-free and tax-free within ISAs and allowances – but when my client sells his home, he’ll pay a ‘success tax’ of 28% on the profit he’s made to HMRC, and that amount, which could run into tens of thousands, will really eat into his return.
If you can afford to buy your own home, you should. It’s a place for you to build memories.
But as an investment, I’ll keep backing Global PLC and allow the best brains and talent in the world to grow my wealth tax efficiently.
■ To learn more about investing, search for The Money Planner podcast.
Abeautiful spell of weather last weekend will have enticed many of us outdoors to examine the garden.
None of our plots look at their best right now so we really appreciate bursts of colour from yellow daffs and the purple and orange crocus.
Colour lifts the spirits and it’s what most of us want from our outdoor spaces.
One plant that will deliver this in spades from mid-summer to late autumn is the dahlia – and March is the month to coax those tubers into life or start growing them from seed.
For a while, dahlias were drifting out of fashion but they are undergoing a renaissance as gardeners appreciate the variety of shapes, sizes and their long-flowering ability.
Deadhead them and they will keep popping out flowers – and in some milder areas they may be the last flower standing in December.
They make superb cut flowers, enjoying a good vase life, and cutting will also stimulate further growth.
However, novice gardeners may be put off by technical talk of lifting and storing tubers in the winter and believe dahlias to be difficult. Not true.
The key to growing dahlias is understanding they originate in Mexico which makes them sun lovers and unable to withstand frost. This means you don’t plant them out until after frost has gone, which can be anywhere from
They make superb cut flowers – and cutting stimulates more growth