Sunday, 14 October 2012

Is Property a Safe Investment?

I did a bit of research on a particular investment and was surprised at what I found...
The figures that I'm quoting date back from 1900 to 2011, so it
not a recent trend, it's been around for a while and that's a good thing. It is not a get rich quick scheme.

After reading this I want you to think...
Would you invest in this asset class based on the following historical results? 
So here we go...

In the last 111 years, this investment has only had 11 negative years. That's just 1 in every 10 years producing a negative return... Ten years is a long time to have just one losing year!

The worst of those years was 1930 with -18%, but remember what happened back then; The Great Depression was not the best time for any investment!
Since that period the average losses in the bad years for this investment has been only around -5%, remembering that the other nine years were all positive.

How positive?

Well of the 111 year history, 100 of those years produced at least 1% return or better.

But 24 of those years produced 10% or more…

And 13 of those years produced more than 15%, often in the return was in the mid 20%’s…

The best of the lot was 1950, that year produced a whopping 133% return.

I'd love to tell you why that year was so good, but I don't know. Maybe it had something to do with the end of the war or maybe a late recovery from the Great Depression which ended in the mid-40s. But no one will ever know exactly why.

In the entire 111 year history the average return has been 6.9% annually... Not bad!

That is doubling every 10 years and is probably given you a hint as to what the asset class might be.

So, if we go back a step and we consider that in 1 in 10 years, you have an average loss of less than 5% and the rest of the ten years, you get an average growth of 6.9%, you're way ahead. Actually the average of 6.9% takes into account the losses as well. So it is pretty solid!

But there is more… Here are a few other interesting observations:

o   There was hardly ever a period of 2 years in a row with negative returns and immediately after a negative return you get higher than average positive returns. A “recovery to the norm” so to speak.

o   This investment can go for 10, 15, even 20 years with positive, back to back gains before you see a loss.

o   If you invested $226,000 invested in this asset class in 2001 it would be worth $485,000 in 2011 ...that's a 125% gain in a period that included the 2008-2009 Global Financial Crisis.

So back to my question when we started out, would you invest in this asset class?

With 111 years of strong history on your side, it’s a yes or no proposition.

OK, enough suspense... the big reveal...  What asset class is this?

Have you figured it out?  It’s REAL ESTATE!

Now, I didn't make these figures up, I got them from the REIA (Real Estate Institute of Australia).  

So what do you do now with all this information?

You can be influenced by all the noise, opinions, doom sayers, and the Media out there and do nothing. And by the way that is a very natural human response to risk. It’s the fight or flight response that is programmed into our brains. Every day you'll hear reports of property bubbles about to crash, inflated prices, unsustainable growth, etc, etc, etc. so it is quite natural to be concerned.

Or you can use 111 years of historical fact and figures to realise that long term the risk is less than it is being made out to be, and that the negativity comes from looking at too short a period of time. And the Media are good at that!

If you can see the long term view then you can move forward and be part of a great investment opportunity. If you can’t then blame the Media.

Now, I'm not saying that you can't lose money in real estate; there are plenty of opportunists out there ready, willing and able to take your money, if you are not wary, but if you're smart, do your research, find someone you can trust and invest for the long-term it's pretty hard not to make substantial gains.

The quicker you get on board the better for you in the long run.
NOTE: Compare that to other asset classes during the GFC which saw the Stock market fall by 46% in the first 12 months and falls of 5% or more are possible on a daily basis.
If you want to know more please call or join us at one of our Property Seminars...

The next seminar is tomorrow night 16th Oct 2012

Click here to register

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