Property investors facing yet another year of low returns, capital erosion due to high inflation and ongoing volatility in the markets will be looking for a smarter way to invest in 2014.
Look for investments that provide an immediate and ongoing, inflation-linked income, as well as long-term capital growth.
Dr Koos du Toit, chief executive officer of P3 Investment Group, which specialises in empowering ordinary salary-earning South African investors to create a financially-independent future, highlights six key factors investors should be considering when making investment decisions this year.
1. Simplicity
The world’s most successful investor, Warren Buffett, warned: “Never invest in something you don’t understand.” Avoid investments shrouded in jargon and beset by uncontrollable risks that require expensive financial advice.
Look for simple, straightforward investments that are easy to understand and implement.
Many investors are surprised to discover, for example, just how simple buy-to-let property investment is – acquire a well-chosen property, rent the property out to a reliable tenant, get a professional rental management company to manage the tenant and the property for a fee, and then watch your investment grow into a passive income stream for life as the property produces an inflation-linked rental income month after month, while also producing capital growth year after year.
2. Balancing income and capital growth
Look for investments that provide an immediate and ongoing, inflation-linked income, as well as long-term capital growth.
For example, investors in buy-to-let property enjoy solid long-term capital appreciation on the property, as the value of the property increases over time, while their buy-to-let property investment also produces an ongoing monthly income in the form of rental.
3. Low risk
All investments entail risk, but it is a fallacy that high risk equals high returns.
Look for investments that provide more certainty and entail less risk.
A pertinent example is buy-to-let property, a virtually risk-free investment if prudent risk management is applied, because the risks involved can be managed and mitigated – if not eliminated – through tried-and-tested risk management strategies the investor can implement easily and cost-effectively.
4. High return investment
Over the very long term – 100 years and more – the average real return on investments is barely 1 percent per annum, making it almost impossible for investors to preserve capital, much less create wealth.
For example, investors in buy-to-let property enjoy solid long-term capital appreciation on the property, as the value of the property increases over time, while their buy-to-let property investment also produces an ongoing monthly income in the form of rental.
Look for investments that offer returns well above inflation. Buy-to-let property investment yields investment returns that are far superior to any other asset class, because it generates multiple returns – solid long-term capital growth as well as a passive, ongoing inflation-linked annuity income.
5. Hedge against inflation
As the rate of inflation that determines what your investment returns will be worth at retirement, it is absolutely crucial to ensure that an investment provides a hedge against the ravages of inflation.
One investment that has proven to outperform inflation is buy-to-let property investment.
Firstly, property price growth, while experiencing short-term fluctuations, continues to keep pace with inflation over the long term.
In fact, it is widely recognised that inflation boosts physical asset prices like gold, silver, oil and property.
Secondly, the monthly rental income generated by a buy-to-let property keeps pace with inflation year after year, as the rental increases each year.
6. Fees
Investment fees can decimate investment returns, costing investors millions of rands over the investment period.
Look for investments that involve very low or no fees. For example, buy-to-let property investment involves no advice and no fees, and – not surprisingly – the returns generated for the investor reflect the absence of both.
For taking less risk and avoiding exorbitant fees, buy-to-let investors can implement a simple, understandable strategy that has been used by the world’s wealthiest investors for decades to expect create an inflation-linked, passive annuity income for the rest of their lives, in addition to solid capital growth that outpaces inflation, which add up to truly impressive returns, adds Du Toit.
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