The best laid plans are worth nothing until they are actually put into action. These days, maybe there are just too many choices for some investors which can lead to indecision. Should we invest in the Inner Suburbs or the Outer? An apartment or a house? A dual occupancy or single dwelling? Or should we simply invest in cash? Sometimes we can feel surrounded with people who wish they could just choose one option and have faith in it.
Some people I meet seem to feel that the distance between planning and action is too great. It can seem like running the equivalent of a marathon doing all those investment reviews, reading magazines, researching the internet, asking people for their experiences, talking to the wealthiest people we may know or the advisers we trust, all before we actually get into any investment. Well the good news is we are not alone in that. ☺
The key lies in taking a big step back from all the details and looking at the long term objective we have and examine the real potential in all the options we have available. A good way to rationalise this is to look at a few different scenarios to educate ourselves on possible future outcomes that might help us make a decision.
The below sets out an example of how you can do this easily. Here we made the underlying assumption that someone has a home with $100,000 of available equity in it. They have a savings capacity of just $50 per week. They have choices, the first of which we assume is investing into cash, the other three scenarios are estimates of fixed returns on residential property options (ranging from 3% pa – very poor, to 5% pa – underperforming, and up to 7% pa – normal).
What is interesting is that sticking to a cash only investment plan for our $50 per week (labelled above as ‘Savings Plan’) ends up with a significantly different outcome, asset wise, to the three property investment scenarios.
Clearly sitting back there in cash and not investing because of fear of the unknown outcome can be very detrimental to one’s wealth. The gap between the cash investment and the 7% per annum property investment in this example is over $240,000 of lost wealth for the person who chose cash.
For those of you who find yourselves in similar circumstances, don’t end up being one of those ‘gonnas’ as my mentor says. Just pick a valid target and shoot for it!
As always if you require help in achieving your goals, please send us an email at email@example.com
Until next month, happy investing.