Get educated before taking the plunge

Published in the Daily Telegraph, August 2014 by Dale Gillham

In the past 18 months investors have moved money into property and shares more than at any other time since the GFC, and this has lifted values of both asset classes.

Whilst we could debate why this is occurring, I believe it is far more valuable to talk about whether this move into direct shares and property is being done properly.

We know there are times when shares out perform property and times when the opposite is true. 

But many Australians are not well diversified as they prefer to invest in one or the other.

This is particularly an issue with investments outside superannuation.

Owning property requires limited knowledge and gives you capital growth and income over the long term, which is essential for any good investment strategy. 

However, the barriers to entry, and the reason for the lack of diversification into property is generally due to the large sum we require upfront and purchase costs.

Quality blue chip shares, unlike property, are a highly liquid asset that also provides good capital growth and income.

However they do require a little more knowledge, depending on your risk level. 

You also need to spread your risk across at least eight, and up to 12 shares, rather than just one share.

So which investment combines benefits of both property and shares?

Exchange Traded Funds, or ETFs, are simply managed funds trading on the share market. You can buy or sell an ETF as you would a share.

Unlike buying one share, when you buy an ETF you get automatic diversification across many different shares with one brokerage fee. 

ETFs are designed to generate capital growth and income which is paid quarterly or half yearly.

Buying an ETF with exposure to the property sector is easy with a few available. 

To invest, first learn about ETFs by visiting the Australian Securities Exchange website as they have lots of great information on this area.

My research is suggesting that the listed property sector is still well down from 2007 highs, unlike other sectors that are already well valued, and I believe we are likely to see another 40 per cent growth in this area over the coming years.

My mantra is that don’t invest in what you don’t understand, as such it is always wise to get educated.

To learn how you can gain the required knowledge and skill to ensure your success in the sharemarket click here.

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