by John Kirk
by John Kirk
If you have built up substantial assets or Retirement Funds, investing beyond 50 is probably not the time to take big financial risks.....or is it?
As one long time Investor put it to me, the first rule of investing is “Don’t lose money”. That is a very simplistic view of putting your money to work for you, but it should always be in the back of your mind as you approach retirement. In light of recent world wide events, I'm sure that most people would agree with this view.
This is not to say that you should not be investing in shares or property. One of the greatest mistakes we can make is to be too conservative with our investment strategy. Quality shares and property purchased in a good location will generally double in value over 7-10 years. Investing in Fixed Interest at 5% will take almost 17 years to double in value if you are taxed at the low rate of 20%.
Over the past 8 years I have worked as a Financial Advisor, a Tax Auditor and a Small Business Educator. During this time I have met many people who just don’t “get it” when it comes to investing. They think that investing in conservative Fixed Interest accounts is “safe” and refuse to look at property and shares to fund their retirement. They point to the volatility of shares, Corporate greed and lies, the Crash of 1987, the price of oil, the War on Terror, Global Warming etc.
I say that the first two laws of investing are –
Law Number One : What goes up, must come down.
Law Number Two : What goes down, always comes back up to a higher level.
If you do your research, and you are prepared to invest wisely for 10 years or more, it is unlikely that you will lose money. The odds are in your favour that your assets will double in this timeframe.
Here are a few things you should know about investing –
• Shares and property will always outperform cash and fixed interest investments over a 10 year period.
• Cash and fixed interest deposits have no tax benefits, whereas shares and property usually have excellent tax deductibility (each country has different tax law so do your homework).
• In countries like Australia, when building a property portfolio, the rule is to only sell if you have to. If you hold on to your existing rental properties, they will cover interest repayments while the equity in your portfolio continues to increase. In other words, your tenants and the Tax Office will fund your investment expenses and the rise in value of your properties over time will increase your wealth and help to fund your retirement. If you hold the asset and don’t sell, Capital Gains Tax is not an issue.
• Being ultra conservative when investing is as bad as blindly investing in volatile shares. If you tie up your money in Fixed Interest at 5% when inflation is running at 4%, tax will kill you and you will begin to eat into your capital reserves.
What about Managed Investment Funds?
Personally, I am not a fan of Managed Funds. The investment mix in these funds are decided on by Fund Managers to suit the Financial Institute and to protect them from potential litigation. Managed Funds project an image that indicates that the Fund will get the highest return with the minimum risk. This is not always how it goes but the Financial Regulators seem to like them from a legal standpoint because they include cash, fixed interest, shares, property and bonds .
My verdict – Managed Funds are politically correct but you can get better returns with the same amount of risk by taking a 10 year view and maximising your exposure to shares and property at the expense of the more conservative investments.
For further articles for the Over 50s, visit www.Life-Beyond-50.com
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