Yes that was the key message we were reminded from Matt who speaks on Sky & a key man
for Perpetual, a very major fund manager.
We had heard it before & being reminded was very
useful. In fact we have written about it before.
The question always is where is the best place to invest?
The answer always is ‘it depends’.
Two important variables are ‘how long?’ & what is your ‘risk appetite’.
What can we invest in?
Really there are only four major classes: gold, cash,
property & shares.
Yes they all have subsets such as property with
residential, office, commercial, industrial, international…
Then there is the time frame .
If it is for a short
term then cash is where we go. i.e. cash, term deposits via banks or bonds from
corporates or governments or institutions.
Investment has two
outcomes growth & income.
As Matt said & as Rich Dad, Poor Dad wrote. [A
compulsory book for you to read we might add].
Assets produce income & liabilities cost you.
Gold doesn’t
produce an income & the reason why Warren Buffett
doesn’t invest in gold.
Your home doesn’t
produce an income & Rich Dad Poor Dad teaches you why that is so.
Very simply
your home costs you maintenance, & the interest is bad debt & non
deductible. So are the costs of insurance , rates, tradesmen….. There is
opportunity cost where your equity could be elsewhere invested
‘A house is like a spouse; it requires money
& maintenance.’
Your home is
a liability. It is a lifestyle.
If we consider
so called investment property then in most cases the cashflow is negative. So it too is a liability & we have
argued that unless you make a nominal 100K over time then you have gone backward.
Let’s look at what Matt demonstrated with both growth & income being the total return.
He took it over a long period of time from the end of
1974.
Gold returned
only 14 times the original investment. [It pays no income.]
Cash returned only 20 times. [ It does not
grow & the income is variable.]
Residential
property 48 times. [Matt stated that the costs are 70% of income]
Listed
property trusts returned 102 times. [net
income is higher as costs are lower]
Equities
produced 180 times. [profits grow & reinvested
which increases prices & dividends]. [Yes there are industrial shares
& resource shares… but let’s keep it
simple.]
Matt stated that we have the same results over
any such long time period.
[The assumptions are very rigorous & from sources such as RBA & UBS
& REIA.]
Yes we can make all the emotional comments which is
reflected in our ‘risk profile’.
Investments
are like the tides & relationships. They go up & down.
We read today that retirees who have 700K to 1 million
houses have on average 200K in their super.
What is 200K or even 500k going to provide in
retirement income to you?
Not today’s lifestyle which is why we need to not underestimate the Power of Income.
i.e. asset rich Income poor.
There is too much emphasis on growth. That's impatience.
Remember we as a booming baby expects to have a long investment horizon of 30+ years.
As we have also read simply reinvesting the income back into the asset & not spending
it makes you money over a longer time.
The income
& the tax refund is the portfolio & not yours to spend.
Let’s do it.
‘If we were in your position what would we do so that you are better off
in three years time.’
·
We could discuss that your super
is not an asset. However if you qualify we might turn it into an asset.
·
We could discuss turning your home
into an asset & switching your debt into good deductible debt.
‘It's your responsibility to save so you can
enjoy a good standard of living in your retirement’.
John McAuliffe
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