Our Parents Influence
There is no question that things were easier in our parents’
days. They never had to feel envious when their neighbours were
buying their third investment property while they were too
frightened to buy their first.
This was mainly because no one was buying investment
properties. They all just plodded along building their first
homes then paying them off to retire on what was rightfully
theirs - the aged pension!
So, it stands to reason that, when they became parents, from a
financial perspective they taught us only what they knew. As
far as they were concerned, we didn’t need to know much about
money - how hard did it really get? All you had to know was
that you worked, you saved, you borrowed for your family home
and you paid your bills on time.
What this means for many adults
today who otherwise are able financially to begin an investment
portfolio is that they are still guided by investment myths
which simply are not appropriate for the new approaches to
investing that have today.
Let’s take a
look at the myths to see if they are
appropriate.
Myth
1
You must be
debt-free before you begin an investment
portfolio
Our parents hated debt because their
parents taught them to. Today, waiting until you own your
own home debt free may mean you miss the boat completely.
The way to deal with this myth is to know that personal
debt is bad debt, but debt which secures income producing
growth assets is good debt. As the asset grows, you only
even need to repay what you borrowed, and you can keep
the rest to fund your own retirement.
Myth
2
You need cash
lump-sums to invest
In the past eras, only those with a lot
of available cash invested. Banks were not as amenable to
property investors, and so few people thought about
borrowing to invest. The beauty of property as an
investment today is its acceptability by banks as a
security for borrowing. That being the case, once you
have entered the market with your first cash deposit
(usually via a purchase of an owner-occupied property),
even low growth on property will mean that you can
leverage again and again over time, even if you never
have any actual cash to do so.
Myth 3
Capital growth is the single most important
feature of an investment property. Capital growth is important
over time. However, your sole reason for investing in property
should be to hold on to it as long as you can so you can gain
the maximum amount of growth. To do this, cashflow aspects of
the investment today should be more important to you than its
potential growth rates, since the ability of a property to
support its own costs is what will keep you in the
market.
Myth
4
Your family
home is a financial asset
Our parents reached retirement with
only their family home, which had always been the
cornerstone of the ‘great Australian dream’. These days,
choosing to view your family home as an asset allows you
to ignore the important task in preparing financially for
your retirement.
If you do not want to end up
having to sell the family home and move outside your
neighbourhood to liquidate cash to live on, then you must
accept your home will remain a liability until you choose to
use it to leverage into other income-producing assets. For
many, this will mean dealing with fear of debt now, and
understanding that another day you wait may be another you
waste.
Myth 5
- the biggest
You need to be a risk
taker
Perhaps the
biggest misconception about investing is that you need to be a
risk taker or highly intelligent and astute to succeed. Almost
anybody with any level of income can put together some form of
investment portfolio, and most probably include property in
that portfolio.
The key is to become informed.
Ask questions and read as much as you can. Consider all
viewpoints. Start today and don’t procrastinate.
Understand it may not run
smoothly and at times it will seem that the adversity is just
too great to overcome, but slowly and surely your portfolio
will grow and prosper.
And, most importantly, you will
have taken the responsibility for your future into your own
hands
by Margret Lomas
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