Spread your risk to cushion the fall

I think that I am really lucky in having one of the most interesting jobs in the world. Why? Because people of all ages, different nationalities and religions come to see me to tell me their dreams for the future and seek help in fulfilling them.

Obviously, they all have different needs, priorities and objectives, not to mention amounts of money that they can use to attain their goals. What it shows is that there are no barriers when it comes to money and everyone wants to do the best that they can for themselves and their families.

However, what I find really interesting is different nationalities' views on different types of assets and investments.

Never put all your eggs in one basket: Property is a case in point. Most people want to have a property in their portfolio either as an investment or just to 'stay in the market' on their return to their home country.

However, there are some nationalities where property forms almost their entire asset base apart from cash that they are building up to enable them to buy the next property.

I believe that if there were an Olympic event for belief in property as an investment, the Australians would win 'Gold' every time.

I realise that there can be tax advantages in offsetting interest etc, but I remember my father telling me 'never to put all your eggs in one basket' and I have always thought this was a good maxim to follow with investments.

The facts: Unfortunately, I have not been able to find any long-term analysis of returns from property against other forms of investment in Australia, to say whether this was the right road to travel or not.

The only details I have are to measure returns from UK property, which is one of the most active markets, against equity markets over all 10-year periods from 1980-2000. These show that in almost every 10-year period during this time equities in the UK, U.S. and Europe have outperformed property.

The exceptions being in 1985-1994 when property beat U.S. equities by 9 per cent, but as equities returned 156 per cent this still was not bad. Also property outperformed European shares in 1987-1996 by 149 per cent to 143 per cent.

In other periods equities produced more than double the returns of property. UK equity has outperformed property in every period. Property is not immune from large falls.

I know the value of my own property in the UK fell by 50 per cent at the end of the 80s and beginning of the 90s and there are many others, in different parts of the world who have recently experienced falls in their property values far greater than that seen in the stock market over the last two years.

The reason why I bring this up is not to have a 'dig' at Australians - I dare not as I work for an Australian company — or other individuals whatever their nationality.

I just want to remind you that financial planning and investment should be undertaken as a long-term investment, otherwise it is speculation. Just because the stock markets are going through an uncertain time at the moment, does not mean that they should be ignored. As I have demonstrated in this column before, when markets turn, they turn very quickly and the greatest gains are realised in the first month.

Not easily accessible when you need liquid funds: The other reason not to have all your assets in property is that it is not easily accessible as and when you require more liquid assets. One of my clients recently needed funds and had to sell one of his properties in Sydney, where everyone told him prices were rising rapidly and he should get around A$2 million (Dh1.06 million). Six months later when it had not sold he was forced to sell at a 25 per cent discount.

Similarly, another client who was retiring to Spain was told by a number of real estate agents that he would get £600,000 (Dh3.2 million) for his property in Ascot, one of the most desirable areas in the south of England. It is still on the market 9 months later.

If you are keen on property why not choose one of the many property or ground rent mutual funds that will allow you to participate in any rises in the market and also get your funds on demand if they are needed urgently.

Nobody makes money from shares! Going back to the different people I am privileged to see and meet, I saw one British gentleman who told me that he had never heard of anyone making money from shares! Well perhaps the above figures from Lipper Limited (a Reuters Company) may persuade him.

In the same week I also saw a gentleman from the sub-continent - where property prices have not being doing so well - who wished to place a sizeable amount of money into a mutual fund as he wanted to take advantage of the upturn that will inevitably come.

Believe me, I do not know what will happen tomorrow let alone in 10 years and I doubt if you do either. So spread your risk and build an investment portfolio that includes a spread of assets.

This should include property, shares or mutual funds/unit trusts and, once you have built it up, for say 5 per cent of your portfolio, something that you are interested in. This may be jewellery, antiques, art or even cars all of which you could still get pleasure from if prices fell.