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A Fin24 user wants to know if it would be better to invest in shares or in more property in the long run. He writes:
I'm 28 years old and have four apartments that I'm renting out, but I always look at what else to invest in.
Would you say stay with property and buy more or invest in things like the Satrix 40 or Allan Gray?
All this is to ensure I can retire one day - that is for the long run.
Richard Carter, head of product development at Allan Gray, responds:
Thank you for your question. It’s great that you are thinking about your retirement and looking to diversify your investment portfolio.
While you have posed an interesting question, it would be very difficult to give you holistic financial advice based on these snippets of information provided.
Before allocating further capital to other investments, we would recommend that you seek the services of an independent financial adviser to help you consider all the facts and come up with a plan that is right for you.
That said, there are a few aspects that you should consider when making your investment decisions.
These include: The diversification of your portfolio, your investment time horizon (that is the length of time you want to invest), the amount of risk you are prepared to take, how much you plan to invest, the investment options available to you as well as your investment objectives.
These are discussed in more detail below.
Diversification
Don’t put all your eggs in one basket. No one knows what the future holds, which is why it is a good idea to have different investments.
If one asset class (such as residential property) performs badly, others can make up for it.
An important aspect to consider is country risk. If all your financial eggs are in this country, then you should consider assets abroad to diversify your country risk.
Investment time horizon and risk
As you are still relatively young, you could have another 20 to 40 years before you retire.
Having such a long investment time horizon affords you the opportunity to invest in more volatile or risky asset classes.
Historically, riskier asset classes (such as equities and property) have provided returns superior to other asset classes over the long term.
Volatility and returns also tend to average out over time. Volatility refers to the propensity of the value of your investment to go up and down over a period of time.
Investment amount and expenses
As a property owner, you are probably well aware of the costs associated with investing in property.
This is generally much higher compared to that of unit trusts. Investing directly in property requires a sizeable amount of money – making it less of a viable option if you have a smaller amount to invest.
The time needed to manage a property investment and the expenses associated with maintaining it can also be substantial.
If you lack the time or if you are merely looking to diversify and lower your investment costs, unit trusts could be a good option.
Tax-incentivised investment products
To encourage South African’s to save for retirement the government provides tax incentives to invest in certain retirement products.
These products include pension, provident and retirement annuity funds.
These products allow you to invest in different asset classes and reduce the tax you pay on your income.
The returns you earn on your investment in these products are also tax-free.
The downside is that you have limited access to your money until retirement and you are also restricted in terms of the maximum amount of money you can allocate to each asset class - for example 75% equities, 25% property and 25% offshore.
These retirement products can be very useful when saving for retirement, but should be evaluated in light of your own investment needs and objectives.
Choosing the right retirement savings vehicle for your investment objectives
Making the right investment choice can be tough, which is why we encourage investors to seek the help of an independent financial adviser.
A good independent financial adviser will be able to assist you with finding the best investments to match your investment objectives.
- Fin24
Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.
Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers.
Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.
I'm 28 years old and have four apartments that I'm renting out, but I always look at what else to invest in.
Would you say stay with property and buy more or invest in things like the Satrix 40 or Allan Gray?
All this is to ensure I can retire one day - that is for the long run.
Richard Carter, head of product development at Allan Gray, responds:
Thank you for your question. It’s great that you are thinking about your retirement and looking to diversify your investment portfolio.
While you have posed an interesting question, it would be very difficult to give you holistic financial advice based on these snippets of information provided.
Before allocating further capital to other investments, we would recommend that you seek the services of an independent financial adviser to help you consider all the facts and come up with a plan that is right for you.
That said, there are a few aspects that you should consider when making your investment decisions.
These include: The diversification of your portfolio, your investment time horizon (that is the length of time you want to invest), the amount of risk you are prepared to take, how much you plan to invest, the investment options available to you as well as your investment objectives.
These are discussed in more detail below.
Diversification
Don’t put all your eggs in one basket. No one knows what the future holds, which is why it is a good idea to have different investments.
If one asset class (such as residential property) performs badly, others can make up for it.
An important aspect to consider is country risk. If all your financial eggs are in this country, then you should consider assets abroad to diversify your country risk.
Investment time horizon and risk
As you are still relatively young, you could have another 20 to 40 years before you retire.
Having such a long investment time horizon affords you the opportunity to invest in more volatile or risky asset classes.
Historically, riskier asset classes (such as equities and property) have provided returns superior to other asset classes over the long term.
Volatility and returns also tend to average out over time. Volatility refers to the propensity of the value of your investment to go up and down over a period of time.
Investment amount and expenses
As a property owner, you are probably well aware of the costs associated with investing in property.
This is generally much higher compared to that of unit trusts. Investing directly in property requires a sizeable amount of money – making it less of a viable option if you have a smaller amount to invest.
The time needed to manage a property investment and the expenses associated with maintaining it can also be substantial.
If you lack the time or if you are merely looking to diversify and lower your investment costs, unit trusts could be a good option.
Tax-incentivised investment products
To encourage South African’s to save for retirement the government provides tax incentives to invest in certain retirement products.
These products include pension, provident and retirement annuity funds.
These products allow you to invest in different asset classes and reduce the tax you pay on your income.
The returns you earn on your investment in these products are also tax-free.
The downside is that you have limited access to your money until retirement and you are also restricted in terms of the maximum amount of money you can allocate to each asset class - for example 75% equities, 25% property and 25% offshore.
These retirement products can be very useful when saving for retirement, but should be evaluated in light of your own investment needs and objectives.
Choosing the right retirement savings vehicle for your investment objectives
Making the right investment choice can be tough, which is why we encourage investors to seek the help of an independent financial adviser.
A good independent financial adviser will be able to assist you with finding the best investments to match your investment objectives.
- Fin24
Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.
Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers.
Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.
