Where to go when real estate market slows

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When you want to diversify your investments and look at options other than property, there are plenty of other places for you to park your hard-earned cash.

When you dabble in shares, you use your money to invest in securities, which are shares issued by companies, debt securities and other investment units. With share investments, your return comes in two forms: capital gain and dividend income.

  • Capital gain occurs when the share price increases. For example, if you buy 1,000 shares at $2.50 and they grow in value to $3.00 and you sell, you’ll make a capital gain of 0.50c per share, or $500. Capital losses can occur too, and sometimes very rapidly.
  • Just as property owners receive income in the form of rent, share owners receive dividends as regular income. Dividends can be paid up to twice per year, but some companies pay no dividends and keep profits, to help fund growth in their business.

Managed funds
A managed fund is exactly what it sounds like: an investment fund of money pooled from various investors, which is professionally managed by an expert fund manager. When you invest in managed funds, your contribution is pooled together with that of thousands, or even hundreds of thousands, of other investors, to create one single strong fund. Typically, the fund manager invests in a variety of different companies, with the aim of achieving strong profits from a diverse range of investments.

The bank
A very safe and profitable place to invest your money at present is the bank! Lenders are hungry to boost their cash reserves and as a result, they’re willing to pay up to 7% per annum if you deposit your money into their high interest savings accounts and term deposits. That equates to $3,500 annually, or a little under $300 per month, on savings of $50,000. The primary downfall of banking your cash is that you can’t leverage your investment for more significant gains.

Diversifying your investments
According to the experts, there is no one single ideal asset class that you should sink all of your funds into.

“Every second year or so, I get told that an investment guru has just pointed out that the future is in dividend imputation funds, overseas equities, biotech stocks or an obscure Australian mining company that’s about to strike it rich,” says Greville Pabst, CEO of WBP Property Group, a strategic property consultancy, buyers agent and valuation services company.

“What I always recommend to investors is to get top quality advice no matter where they invest, and diversify their portfolio across the major asset classes.”

They should only consider options that have a well-entrenched history of performance, he adds, “including a recovery from a bad set of circumstances”.

“It’s for this reason that I think well selected property should be a part of any investor’s portfolio,” Pabst says.

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