When people start thinking about investing, the first question they ask is “what investment should I buy?” quickly followed by “shouldn’t I buy an investment property?” As the property market continues to heat up, the race to buy an investment property is on. But before rushing into the property market stop and consider the following.
Have a strategy
It sounds simple, but it’s easy to forget that good investment decisions have strategic thought behind them. Buying an investment property because it seems like the right thing to do at the time isn’t a strategic investment.
Like all good strategies, your investment strategy should be tailored to reach your financial objectives.
Getting deep: how to set your financial objectives
Setting your financial objectives should run significantly deeper than “I want to make as much money as possible”.
While making money is certainly a given, the most important thing to consider are your priorities. Think about how you would like your life to look like in 5, 10, 20 years and beyond. Then, work backwards to create strategies that match your priorities, and therefore objectives.
Back to real estate
The fastest way to lose on an investment is to look at short-term speculation. A sound investment strategy should contain a mix of shares, property and fixed interest and cash. Having this mix means you don’t have all your eggs in one basket and can meet any short term liquidity requirements.
These types of investments come in different forms, for example; Australian shares, international shares, direct property, listed property, managed funds, bonds, term deposits etc. They all have different characteristics, but one commonality: they have the capacity to produce regular income.
Investments sold on the promise of high returns are often hot air. Investments that generate sustainable cash flow (for example dividends, rent, and interest) are more likely to deliver steadily over time.
To be a successful investor and accumulate wealth, beware of investor psychology and behavior. As in life, people make emotional decisions with money. When markets are rising, greed takes over and people want to buy. When markets fall, people grow fearful and their impulse is to sell. Good investors are able to remove the emotion and replace it with logic.
Want to create a wealth strategy tailored to your objectives?
The advice provided on this website is general advice only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this advice you should consider the appropriateness of the advice, having regard to your own objectives, financial situation and needs.