FT - house prices versus equities

beingjdc

StevieJ wrote: »

Or an actors union

Or a thing that a lot of homeowners haven't got any more.

Pobby

My little house bought and paid for. Pension funds long standing. Don`t really understand them so leave it up to the experts. Liquid assets split about 35% cash deposits and isas, 65% equities, gilts, bonds and fixed interests investments. Not doing great at the moment but we will have to see.

Really2

carolt wrote: »

True chucky. Also equities have low maintenance costs compared to housing.

I thought you did have to pay commition to have a fund managed and there is a risk of losing?

mvengemvenge

beingjdc wrote: »

Long-dated Tesco bonds are yielding 6.3% fixed, which compares well to the 3.6% Tesco Bank offer. Now, admittedly you don't get your capital back if Tesco go bust, but...

Tesco......bust......now that sounds like a rumour worth spreading

beingjdc

Really2 wrote: »

I thought you did have to pay commition to have a fund managed and there is a risk of losing?

You do, and there is, but compared to owning a house and having to deal with tenants, letting agents, repairs, insurance, furniture, and voids, it's not that much. Maybe 1.5% a year?

You might lose, arguably they're more volatile than housing, but then most people who invest in funds aren't leveraged, so whereas a 10% fall in a house price might cost you 100% of your equity, a 10% fall in your funds will probably cost you 10% of your equity.

I'm 80% cash, still, but meaning to change that soonish (but much of it is in the Lloyds 6.5% ISA so can stay there until it expires).

chucky

beingjdc wrote: »

You do, and there is, but compared to owning a house and having to deal with tenants, letting agents, repairs, insurance, furniture, and voids, it's not that much. Maybe 1.5% a year?

You might lose, arguably they're more volatile than housing, but then most people who invest in funds aren't leveraged, so whereas a 10% fall in a house price might cost you 100% of your equity, a 10% fall in your funds will probably cost you 10% of your equity.

I'm 80% cash, still, but meaning to change that soonish (but much of it is in the Lloyds 6.5% ISA so can stay there until it expires).

yes but if you invest in a house i guess that you save in money that you would have paid by renting. if it is as an investment i get you're point, but would have preferred if the comparison had been for a longer period.

i think the equity vs property comparison would have been against an Index which would have required fees anyway.

purch

Tesco......bust......now that sounds like a rumour worth spreading

Hang on a mo'.............let me sell me shares first !!!! :eek:

beingjdc

chucky wrote: »

yes but if you invest in a house i guess that you save in money that you would have paid by renting.

No, this is the myth we've been going through in detail on several threads here!

If you have the money to buy a house for cash, then the money you save on renting, you lose on other ways you could have invested your money.

If you have to take out a mortgage, then the money you save on renting, you pay to the bank in interest instead.

Per se, there's no 'saving' from buying a house, though long-term the leverage effect works for you if there is inflation, and the tax system treats owning a house much more generously than having cash or shares.

chucky

beingjdc wrote: »

No, this is the myth we've been going through in detail on several threads here!

If you have the money to buy a house for cash, then the money you save on renting, you lose on other ways you could have invested your money.

If you have to take out a mortgage, then the money you save on renting, you pay to the bank in interest instead.

Per se, there's no 'saving' from buying a house, though long-term the leverage effect works for you if there is inflation, and the tax system treats owning a house much more generously than having cash or shares.

i was making the comparison if you lived in a house and invested the same amount in equities. i don't think it's comparable as you have to factor in rent saved but then add repairs, council tax etc...

if you BTLed and invested the same in equities I have no argument.

beingjdc

chucky wrote: »

i was making the comparison if you lived in a house and invested the same amount in equities. i don't think it's comparable as you have to factor in rent saved but then add repairs, council tax etc...

Yes, it just depends on the rent saved.

Say at the moment the house you want is £200k to buy, or £1000 a month to rent (realistic round here). If you have the cash, then you save £1000 a month on rent, or you could buy equities. The current yield on the FTSE all share is only about 3%, so you would only get £500 a month from your investments as income. Even if you spend £100 a month on insurance and repairs that you wouldn't have to as a renter, you're £400 a month down.

However, the question is the relative likelihood of the capital value going up or down in each investment, because that £5000 a year is only 2.5% - so if shares fall 10%, but house prices fall 12.5%, you were still better off continuing to rent and holding the shares. Alternatively, you could buy something higher-yield, but riskier - say INVESCO's selection of corporate bonds, will currently pay a fixed income of 7.4%. That would more than cover the rent, with over £200 a month left over - but there is a higher risk (theoretically, actually in this market I'm not sure shares are safer) of some of the underlying companies going bust.

For buying with a mortgage, similar comparison, except that you have to multiply the change in house prices by the reciprocal of whatever percentage deposit you have. So for example in that case a 10% fall in house prices when you had a 20% deposit is equivalent to a 50% fall in the capital value of the shares you would otherwise have owned.