Where to invest. Share market? Property?

• October 8, 2008
• Business
• Editor

By AMP Financial Planner Peter Lake*

Let’s get this clear; speculating company X is going to be “the next big thing” is not investing, it’s actually gambling. Sure, there is the possibility that you may kick a financial goal but, on the other hand, you’re just as likely to lose the lot.

High potential return means high risk and vise versa. If you don’t want to take any risk, put your money in the bank where your capital will be safe. The downer however is that it will lose value over time as it is hacked away at by inflation.

Residential Property? “You can’t lose money on bricks and mortar,” I hear you say. Yeah, right! Australian house prices are at historic highs at present. In the last 20 years Aussie houses have gone up five fold. Over the same period, US house prices have risen three fold. And we’ve seen what has happened to US house prices recently. Add this to our historically high debt levels and there’s room for some pessimism about the mid-term outlook for residential property.

The real secret to long-term investing is to diversify your investments according to your risk-tolerance, while considering your cash-flow and taxation situations, as well as your need for liquidity. No matter what happens to your investments in the short-term, you don’t make a gain or loss unless you sell. Both shares and property offer the potential for capital gains or losses, as well as income by way of dividends or rent. Similarly, fixed interest investments, while regarded as being safe in general, also offer some capital risk as well as income. And maybe you should also hold some cash in your portfolio, just in case.

What you should invest in, how much debt you can manage, and other associated issues are best decided in the light of professional advice and education. Only then will you be sure that your choices are at least valid and appropriate for now.

*Peter Lake is an Authorised Representative of AMP Financial Planning Pty Ltd, ABN 89 051 208 327, AFS Licence No. 232706.

Any advice given is general only and has not taken into account your objectives, financial situation or needs.  Because of this, before acting on any advice, you should consult a financial planner to consider how appropriate the advice is to your objectives, financial situation and needs.