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Property, shares or cash: which way should I go?

I have four investment properties and am buying a fifth. Is it the right time to invest in another or are shares the way to go or should I just hold cash at the moment?

When answering a question like this, a financial planner always wants to know a lot more about the client. In trying to construct a financial plan you need to know what are the goals of the client? What are their ages? What are their assets and liabilities? How secure is their income? And a really important question has to be asked and answered — what is their appetite for risk?

Once you put all of this together, you can map out a blueprint for making these money dreams come true. So, as I’m operating in the dark on all of these important questions, I will make a few assumptions and share with you some of the rules of thumb that financial advisers always think about.

First up I’m assuming you want to grow your wealth and you have a preference for property – not many people have four properties heading for a possible fifth! If you know property well and you don’t have potential liquidity issues, then the big property portfolio strategy can work. I would like you to think about what would happen if you needed, say, $100,000 in a hurry. Would your commitment to property cause you an issue? Many people have equity in their properties and with drawback facilities on their loans they have access to cash if they need it.

Most financial planners would say diversification makes sense and maybe it’s time to add an exposure to stocks. Timing wise, the share market could still be in for a few challenges but I reckon some time over 2012 a lot of the spook factors that are hurting stock prices will be behind us and so I expect 2013 will be a good year for shares but the rally could start in 2012. That’s the gamble.

I believe we’ll avoid a big house price collapse predicted by a small number of doomsday merchants and I wouldn’t expect a big fall in property prices, so I think it’s an OK time to buy an investment property provided you buy where tenants want to live.

To some of my new clients who aren’t overexposed to the stock market, I’m suggesting we wait awhile until the worst of this European debt and banking mess is behind us before re-entering the stock market but they tend to be retirees who don’t want to take any hits to their nest egg.

Younger people can afford to enter now cautiously buying great quality companies with a history of paying dividends when the stock market is sold off. I know this sounds complicated and it explains why so many people just opt for the more understandable real estate market.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Thursday, September 29, 2011

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