Investing as part of life plan

jamels2

I have read that it's good to diversify where you put your money. I have so far invested in one property with about 40% equity deposit (80k paid of a 220k property.)I have another 40k sat in the bank.
I was planning on a second property but thought it might be a bad idea to have my whole investment in property.
So I researched and found that stocks and shares are the only other thing worth investing in that's comparative to property.
I had imagined I'd have to get quite involved and read up on the markets and make choices along the way. To my surprise the advice I've found from several places says to just pile money into a globally diverse index tracker fund and depending on risk add some bonds to balance it.
This slightly disappointed and amazed me at the same time. I like to get involved with things I put my money into, but the advice is saying choose a low cost index fund and you're done.
Is it sensible then to put say half my money into property and the other half Into an index fund with a small amount as cash for emergencies?
Thanks for any replies.

MaxiRobriguez

Yes it's sensible.

The reason why many people now suggest index tracking funds is because:
1) They give you better diversification than you could do yourself.
2) They're cheaper than actively managed funds.
3) They've been shown to perform (at least) on par with actively managed funds.

There's also the benefit that you don't need to rebalance if you just have one global index tracker as it's just happening anywhere within the background. The more you start getting involved with the lower level detail, the more headstrong you have to be - selling your winners and buying losers every quarter or half in order to retain the correct balance you want to keep. It's not easy doing that because it feels wrong.

As an aside point, I don't actually think a second investment in a property is a bad thing. It's still going to be a profitable venture for you so I wouldn't worry about diversifying against loss. The risk really is in tax implications which you might not have if you put the money in a stocks and shares ISA which was then used to buy your global index fund.

N.b: Stocks (even global index funds) can go down as well as up. If you're gonna dip your money into stock markets you need to be prepared to leave it in their for 5 years at least, just in case we see big losses in the next 1-3 years which take a couple of years to recover.

eskbanker

MaxiRobriguez wrote: »

As an aside point, I don't actually think a second investment in a property is a bad thing. It's still going to be a profitable venture for you so I wouldn't worry about diversifying against loss. The risk really is in tax implications which you might not have if you put the money in a stocks and shares ISA which was then used to buy your global index fund.

That's a massive generalisation!

Of course it's possible to profit from property investments, and it's maybe even likely, with sufficient care and attention, but it's far from guaranteed, as there are so many variables involved, some of which are entirely beyond the owner's control (same applies to S&S of course!)....

Flobberchops

jamels2 wrote: »

I had imagined I'd have to get quite involved and read up on the markets and make choices along the way. To my surprise the advice I've found from several places says to just pile money into a globally diverse index tracker fund and depending on risk add some bonds to balance it.
This slightly disappointed and amazed me at the same time.

Sure. The logic being that unless you have some kind of insider knowledge or are clairvoyant, the movement of your stocks will approximate a random process. If you were going to buy just one, or a handful, of stocks I suppose you could spend a lot of time and effort keeping tabs on the company's movements, profits forecast, news of any scandals or leadership changes, and so on, to try to decide the best time to buy and sell - and even then, if you manage anything approaching a reliable method (as opposed to it all being glaringly obvious in hindsight) you'll have done better than most professionals. If you're following conventional wisdom and buying a diverse basket of stocks, then good luck keeping abreast of all of them. Better for your sanity, not to mention time management, to simply lower your costs as much as possible by keeping dealing and management fees low, and then letting the market do its thing.

MaxiRobriguez

eskbanker wrote: »

That's a massive generalisation!

Of course it's possible to profit from property investments, and it's maybe even likely, with sufficient care and attention, but it's far from guaranteed, as there are so many variables involved, some of which are entirely beyond the owner's control (same applies to S&S of course!)....

Yes, I was sort of assuming that our friendly OP wasn't going to spend £1m on a two bed terrace in Wigan and would be semi competent in renting the property out 80% of the time, given that he/she is already renting out a house already, so should have some sort of an idea on how to calculate the revenue and costs for any new investment property!

If house prices decline by such an amount that rental income doesn't get close to making the difference up over a number of years then stock prices will have likely tanked more.

eskbanker

MaxiRobriguez wrote: »

Yes, I was sort of assuming that our friendly OP wasn't going to spend £1m on a two bed terrace in Wigan and would be semi competent in renting the property out 80% of the time, given that he/she is already renting out a house already, so should have some sort of an idea on how to calculate the revenue and costs for any new investment property!

If house prices decline by such an amount that rental income doesn't get close to making the difference up over a number of years then stock prices will have likely tanked more.

Yes, wouldn't necessarily disagree with any of that and am not asserting that S&S investments will outperform property, just challenging the statement that property investment definitely will be profitable. You'd already highlighted tax risks and in another thread OP has also reported some issues with getting sufficient rental payments on time or in full from a difficult-to-evict tenant....

bostonerimus

Is it sensible then to put say half my money into property and the other half Into an index fund with a small amount as cash for emergencies?

Broadly speaking, yes! you also need to consider where you put your stocks and shares investments ie a pension, and ISA and just regular accounts.

FYI I've been putting money into my home and a single rental property and the rest into a few index funds that I just rebalance every so often. This allowed me to retire at age 52 mortgage free and with more than enough money in pensions and index fund investments to give me a comfortable retirement and probably leave lots to my heirs. So yeah it can be as simple as you suggest because that's basically what I did, and succeeded.

MaxiRobriguez

bostonerimus wrote: »

Broadly speaking, yes! you also need to consider where you put your stocks and shares investments ie a pension, and ISA and just regular accounts.

FYI I've been putting money into my home and a single rental property and the rest into a few index funds that I just rebalance every so often. This allowed me to retire at age 52 mortgage free and with more than enough money in pensions and index fund investments to give me a comfortable retirement and probably leave lots to my heirs. So yeah it can be as simple as you suggest because that's basically what I did, and succeeded.

Much harder if starting now to achieve what you did, given house price and equity valuations are stretched.

For most people putting a bit into a rental and a bit into global tracker, retirement at 52 remains unlikely.

Thrugelmir

jamels2 wrote: »

This slightly disappointed and amazed me at the same time. I like to get involved with things I put my money into, but the advice is saying choose a low cost index fund and you're done.

With £40k available, would be an appropriate choice of investment as a first building block in a portfolio. Plenty of time afterwards to read and research for potential investments.

DrSyn

1. Yes it is sensible to invest in index funds. Among the best explanations I have come across of why are given below.

http://www.kroijer.com/

https://www.ifa.com/indexfundsthemovie/

After placing the greater part of your money in them, you can always try and do it yourself with a smaller portion of your money. If you find you can consistently do better, then you can raise that amount.

2. If the property is the one you live in, then the answer is properly yes. After all you have live somewhere.

If you mean just as an investment, I think a great deal depends on the person doing the investing. Property is not a one way bet as some people think. As you know BTL has its own problems. So for some people it makes sense for others it does not.

Thrugelmir

DrSyn wrote: »

After placing the greater part of your money in them, you can always try and do it yourself with a smaller portion of your[/B] money. If you find you can consistently do better, then you can raise that amount.

The more people that focus on the mega cap stocks. The less interest there is in other sectors of the market. Fads come and go.