Reply to: Attitude to Fixed Income in 2014

[Unix]

Never put your eggs in one basket.

Always invest in stuff that is out. If property has gone up a lot then it's more likely to go down.

[DimPrawn]

Better than a lottery win - owning property

It could be you!

'Property millionaires club' to reach 500,000 this year - Telegraph

It certainly isn't AtW

Sadly, I put my last £1000 into BitCoins in 2010, which means I've only got £2,000,000 now....

[Gittins Gal]

Don't think I have ever said I think it's risk free. I certainly do not think it is. There is no such thing as a risk free investment.



I had. I know what happened. And I am still invested in the markets.

.

Trying to become quickly richy through investing is a path that is strewn with failure. Becoming slowly richer is a better strategy.



The problem with your analysis is that you have constructed a positive scenario in your mind. I could just as easily construct a negative scenario. It goes like this:

You borrowed 250k and put down a 100k deposit, to purchase a 350k BTL in an up-and-coming part of London. However the glut in the market of similar BTL properties in the area ( caused by a rapid downsizing of the financial work force in London ) meant that it was only let out 60% of the time during the first decade. At a rate that was just below the break-even required to cover the mortgage interest.

The UKIP government in the early 20's had succeeded in forcing the repatriation of a large number of recent migrants and that coupled with the improved transport into London meaning that more people could simply travel in from the booming home-counties ( prices up 60% a year! ) meant that the area you had invested in was particularly badly over-supplied - and never really recovered during the 30 years you held the property.

Problems were exacerbated when Labour introduced a "Rental Cap", along with other measures to "Protect the rights of renters" which limited the amount of income you could generate.

And years latter you would swear that your gall-stones were caused by the stresses of dealing with one particularly awful bunch of tenants that had you running round after their every whim. They didn't even pay on time!

The local property prices slumped as the area de-gentrified, run-down neighbouring properties badly effected the price and the ability to sell-out at what would have been a reasonable, but still containable loss.

As inflation took hold the Bank of England put up interest rates that the lending bank had no qualms about passing on to you. The "Rent Cap" increased your losses, although inflation gave you the impression your asset was finally increasing in value.

The final straw was the 2034 Labour governments introduction of the "Right to buy" for long term tenants. Meaning you were forced to part company with the property, that you'd struggled to hold onto for 20 years, at a time not of your choosing. Of course the tenants choose to force your hand during the 2035 property slump caused by the large number of Baby-Boomers exiting the market.
Th mi benus



Me too. Enjoy.

Good grief! It deserves a reply but I may have to wait until the morning!

[Gittins Gal]

Never put your eggs in one basket.

Always invest in stuff that is out. If property has gone up a lot then it's more likely to go down.

Gold has gone down and generallly mining shares are well down, emerging markets look a lot cheaper than the US and Europe.

I would steer clear of bonds interest rates can only go up which will always push bonds down, careful about European and US stocks, perhaps go for rock solid high dividend stuff such as Telco. and only buy property if the sumys add up on the rental, i.e. you make money even if it goes down.

I would adopt some caution at the moment. Perhaps invest over time gradually always hold enough money back for the next crash, so you can pile in and make a killing.

Some wise words there, I'm sure...

[BlasterBates]

Never put your eggs in one basket.

Always invest in stuff that is out. If property has gone up a lot then it's more likely to go down.

Gold has gone down and generallly mining shares are well down, emerging markets look a lot cheaper than the US and Europe.

I would steer clear of bonds interest rates can only go up which will always push bonds down, careful about European and US stocks, perhaps go for rock solid high dividend stuff such as Telco. and only buy property if the sums add up on the rental, i.e. you make money even if it goes down.

I would adopt some caution at the moment. Perhaps invest over time gradually always hold enough money back for the next crash, so you can pile in and make a killing.

[Zero Liability]

P2P lending > most savings accounts & bonds.

[tomtomagain]

Indexing is relatively safe but certainly not immune

Don't think I have ever said I think it's risk free. I certainly do not think it is. There is no such thing as a risk free investment.

what if you had invested lump sums into ISAs just before the credit crunch crash?

I had. I know what happened. And I am still invested in the markets.

you can't become rich from investing in the stock market.

.

Trying to become quickly rich through investing is a path that is strewn with failure. Becoming slowly richer is a better strategy.

The benefit of property is that it is largely a .... And all you have put down is the initial £20k.

The problem with your analysis is that you have constructed a positive scenario in your mind. I could just as easily construct a negative scenario. It goes like this:

You borrowed 250k and put down a 100k deposit, to purchase a 350k BTL in an up-and-coming part of London. However the glut in the market of similar BTL properties in the area ( caused by a rapid downsizing of the financial work force in London ) meant that it was only let out 60% of the time during the first decade. At a rate that was just below the break-even required to cover the mortgage interest.

The UKIP government in the early 20's had succeeded in forcing the repatriation of a large number of recent migrants and that coupled with the improved transport into London meaning that more people could simply travel in from the booming home-counties ( prices up 60% a year! ) meant that the area you had invested in was particularly badly over-supplied - and never really recovered during the 30 years you held the property.

Problems were exacerbated when Labour introduced a "Rental Cap", along with other measures to "Protect the rights of renters" which limited the amount of income you could generate.

And years latter you would swear that your gall-stones were caused by the stresses of dealing with one particularly awful bunch of tenants that had you running round after their every whim. They didn't even pay on time!

The local property prices slumped as the area de-gentrified, run-down neighbouring properties badly effected the price and the ability to sell-out at what would have been a reasonable, but still containable loss.

As inflation took hold the Bank of England put up interest rates that the lending bank had no qualms about passing on to you. The "Rent Cap" increased your losses, although inflation gave you the impression your asset was finally increasing in value.

The final straw was the 2034 Labour governments introduction of the "Right to buy" for long term tenants. Meaning you were forced to part company with the property, that you'd struggled to hold onto for 20 years, at a time not of your choosing. Of course the tenants choose to force your hand during the 2035 property slump caused by the large number of Baby-Boomers exiting the market.

Anyway, I digress. I have a Friday night to get out for

Me too. Enjoy.

[doodab]

We have to be fair here, lets say leveraged 2:1. Your property might drop 25% worst case, so you will lose 50% of your capital. A stock can go zero, doesn't matter how your leveraged you will have zilch.

The statistic that half a million people are in negative equity tells us that property can quite easily leave you with sweet FA as well.

Very few people are leveraged as low as 2:1, because greed prohibits them from being so sensible, and 25% is hardly a worse case, as I said earlier my parents are 40% down on a plot of land they bought about 5-6 years ago. I'd wager the houses caught in the recent floods have seen pretty sizeable falls in value as well.

Don't get me wrong, if I had a large sum to invest property would be a part of the strategy (and my other half owns three BTL flats so I understand the hassle that goes with it) but to suggest that a significant sum invested in a single property is safer than the same sum spread across multiple stocks is somewhat disingenuous and quite possibly provably untrue if one were to bother doing some sort of statistical analysis of baskets of stocks and comparing them to house prices. I might have a go in mathematica later, if I can be arsed (I probably can't but I am looking for an excuse to play with the computable data facilities and learn more about them, so you never know...)

Edit: in fact you could look just at indexes rather than baskets of stocks. No index has ever "gone to zero" to my knowledge, the worst recorded bear markets have seen losses of 30% or more but stock markets tend to recover quite quickly relative to the way housing does after a crash. They usually turn the corner and start going up, whereas housing tends to bump along the bottom for several years or more before the next boom starts. Look at october 1987 for example. Massive losses but you'd be back in the black 2 years later. Or the period 99-01, you'd probably have sold up once the slide started so lost maybe 20% and you'd have an opportunity to buy back in later on and realise a far larger gain between 2003 and 2007.

[ChimpMaster]

No one is suggesting putting all your financial assets in to a single stock. I'm not suggesting you put all your financial assets into a single country.

The Vanguard FTSE-All World ETF ( ticker: VWRL ) holds 2630 stocks in across a number of countries.

Putting large amounts into single stock carries risk. We all know that. Ask anyone who worked for Enron.


Rather than me & others defending indexing as a relatively sensible investment strategy can you explain why you believe property is the best answer, how many properties one should hold, over what timescale, how you would get an income from them and how you would divest them?

Indexing is relatively safe but certainly not immune - what if you had invested lump sums into ISAs just before the credit crunch crash? The FTSE is only just getting to pre-2008 levels. And though some indices may look high, the value has simply been watered down by corrosive financing by global governments - currency weakening and the like.

Yes as a long term inflation hedge it is fine, but you can't become rich from investing in the stock market. Not unless you gamble like the banks did (and still do...), but we all know where that leads.

The benefit of property is that it is largely a limited resource with rising demand and with a relatively safe leveraged debt that can be paid for by others. So you can put £20k down to buy a £100k house as a BTL - over 20 years or so the mortgage is paid off by tenants and the house has risen in value to say £300k. So you've made £200k profit on the house value (not allowing for inflation erosion), plus the £80k paid for by the tenants, plus you should have made a monthly profit on the rental income over those 20 years. And all you have put down is the initial £20k.


Anyway, I digress. I have a Friday night to get out for

[Unix]

No one is suggesting putting all your financial assets in to a single stock. I'm not suggesting you put all your financial assets into a single country.

The Vanguard FTSE-All World ETF ( ticker: VWRL ) holds 2630 stocks in across a number of countries.

Putting large amounts into single stock carries risk. We all know that. Ask anyone who worked for Enron.


Rather than me & others defending indexing as a relatively sensible investment strategy can you explain why you believe property is the best answer, how many properties one should hold, over what timescale, how you would get an income from them and how you would divest them?

Spreading risk over many stocks if a good way to protect your investment and an using an index fund is great. I just think property has less downside risk and more income potential. However the downside is the hassle/cost of ownership.

[ChimpMaster]

Are you the new forum idiot, what happened to the old one?


If only there was some way you could pay a monthly amount that would cover the cost of building your house if it was damaged?

LOL brilliant!

[tomtomagain]

. A stock can go zero, doesn't matter how your leveraged you will have zilch.

No one is suggesting putting all your financial assets in to a single stock. I'm not suggesting you put all your financial assets into a single country.

The Vanguard FTSE-All World ETF ( ticker: VWRL ) holds 2630 stocks in across a number of countries.

Putting large amounts into single stock carries risk. We all know that. Ask anyone who worked for Enron.


Rather than me & others defending indexing as a relatively sensible investment strategy can you explain why you believe property is the best answer, how many properties one should hold, over what timescale, how you would get an income from them and how you would divest them?

[Unix]

That's bollocks. A a 5% fall in the value of a property might not sound as bad as a 20% fall in the value of a stock but when you're leveraged the downside is multiplied accordingly. With a 25% deposit your losses would represent 20% of your stake. A smaller deposit means you've lost even more as a %age, and a 25% fall in house prices (not unheard of) leaves you stuck with a secured debt you can't easily be rid of.

We have to be fair here, lets say leveraged 2:1. Your property might drop 25% worst case, so you will lose 50% of your capital. A stock can go zero, doesn't matter how your leveraged you will have zilch.

[doodab]

Yes in A year not every year for 20 years. Equities can go to 0 quickly, property generally has limited downside. It sounds like you had a bad experience with property.

That's bollocks. A a 5% fall in the value of a property might not sound as bad as a 20% fall in the value of a stock but when you're leveraged the downside is multiplied accordingly. With a 25% deposit your losses would represent 20% of your stake. A smaller deposit means you've lost even more as a %age, and a 25% fall in house prices (not unheard of) leaves you stuck with a secured debt you can't easily be rid of.

[lukemg]

They gave you time off for good behaviour.

My position is that I recommend a diverse portfolio comprising of shares, bonds, property & commodities. And I would recommend Vanguard Life Strategy as an excellent way of getting the diversification at a low cost.

You appear to recommend forgoing anything non-physical and putting all your eggs into a few properties.

I don't think you have thought through the risks of being overweight in property.

WHS - Finally someone talking good sense. There is no magic asset to go for or everyone would go for it and remove the magic.
Diversify - you have your own home, that is enough in property for me but if it's not, consider REIT's or FCPT. The problem with property is liquidity, they aint easy to shift and you cant sell half...
look up 3 fund portfolio, which is a brain-off allocation, which needs re-balancing annually but will do fine over 10 years.
As for the chap who's mate ended up with a pension worth half he put in it, that DOES not constitute enough data to provide the pension conclusion you suggest.
My SIPP is averaging 11%/annum - does that make ALL pensions brilliant ?
Of course not - my advice is SIPP and lowest cost indexes you can find for most of your stash. You have to go S&S, cash is toast over any period longer than 10 years.
There are some very simple portfolio options out there, do some research (Monevator.com) and take control.