Why your investment plan should not rely solely on property

Stock markets have been particularly volatile in 2020 due to the Covid-19 pandemic. With hopes of a vaccine in 2021, the situation will hopefully stabilise.

Many investors have been turning to property investments, viewing it a potentially safer option as house prices are rising 5.5% a year1. Rental properties are in high demand at the moment due to young people being unable to afford a deposit on their own home. Currently, many lenders are only offering 85% LTV mortgages meaning that buyers need a 15% deposit.

If property demand and prices fall it may be harder to recover losses from property as opposed to investments. Property, like any investment, is complex and it is worth considering all of your options. For a successful investment portfolio, you need to make sure your investments are diverse.

Property is also a hands-on investment option as you need to make sure that the property is well maintained which can be costly. Arranging maintenance and repairs and liaising with tenants can become time consuming. You also need to factor in periods of time when the property is vacant.

What are the benefits of diversification?

If all of your assets are in property, then you are taking more risk than you need to with your financial future. This is because if the property market crashed then your asset value will drop significantly, and it may take a long time for the sector to recover.

It is important to have assets spread elsewhere so if one market does experience poor returns this loss will hopefully be outweighed by better performance in other sectors.

Portfolio diversification will reduce the amount of risk you are taking with your investments by making sure you invest in multiple sectors and have a variety of fund managers.

How do I diversify my portfolio?

There are many investment choices that you could consider to diversify your assets including shares, investment trusts, funds and bonds; it can be overwhelming and hard to navigate. A financial adviser can be invaluable in explaining the differences between investment options to you. They will also know the tax implications of each type of investment and be able to recommend which is most suitable for your individual circumstances. Tax regulation changes have reduced the profitability of buy-to-let properties as more of the return is now subject to income tax.

Buy-to-let properties may be a suitable investment for some people, but expertise is required to optimise the investment. You need to make a lot of decisions, for example if you are going to manage the property yourself or use an agent. You need to decide if you are going to purchase multiple properties in different locations or want all of your properties in a similar area. It is also helpful if you have contacts in different industries to help you to maintain the properties, such as an electrician and plumber.

At Four Wealth Management, a financial adviser can provide advice on how to build a balanced investment portfolio to help you achieve your personal goals. You can book a no-obligation meeting with an adviser via zoom, telephone, or face to face online or by phoning 0117 973 0500.

Book a no-obligation investment review

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select, and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are dependent on individual circumstances.

1 Rightmove house price index, October 2020