In the last 8 years since 2008 where easy monetary policy has been a mainstay, investors have been on the search for yield. In the immediate years on easy credit and cheap loans, we saw the stocks market inflating, gold reaching its lifetime high, as well as real estate making a comeback.
While the global economy en route out of the economic crisis, markets are less than stable. The economic outlook for major countries such as the United States, Eurozone and China continue to be lacklustre, with the recent Brexit and terrorist threats creating a cautious climate for investing.
However, smart investing is about the ability for your assets to weather through tough times, making it different from trading to take advantage of short-term volatility or taking on unnecessary risk.
In this aspect, real estate has stood out as an investment worth pursuing. But first, we’ll talk about what you need to consider before putting your money into any investment.
Choosing between Stocks, Gold and Real Estate
Stocks, gold and real estate are three popular investment vehicles which have vastly different characteristics and may suit very different investment objectives and risk appetite. Let’s take a quick look at some of their individual traits:
Gold is a very interesting asset class because it is produced primarily for the purpose of accumulation whereas other commodities are produced mainly for consumption or the production of other goods. Thus, its value arises from the global acceptance of it as a store of value or even a type of currency.
Investors also hold gold as a part of your investment portfolio for diversification purposes as it is known to be negatively correlated with the stocks market. During times of crisis or uncertainty, it is common for investors to seek out gold as a flight to safety.
However, one downside to investing in gold is that prices can be very volatile. While the precious metal has seen a bull run since 2001 to hit its lifetime high of above USD1910 per ounce, its fall since 2012 has been phenomenal as well.
Within a period of three-quarters, the gold price fell more than 33% from September 2012 to USD1209.88 per ounce in June 2013. Prices fell further in the following two years and only saw some uptick this year.
Stocks are perhaps one of the most common methods in which to invest since it is easily accessible and do not require a huge amount of money to start out. It is also why many who start investing turn to stocks.
Many swear by value-investing using the stocks market – looking for “undervalued” stocks by ploughing through the annual reports of underrated companies and making an intelligent bet. However, stock-picking as a skill remains elusive to some, and only a few skilled ones make it big.
For those who lack the time and knowledge to discover these hidden gems from thousands of listed companies, one can always diversify their risk by buying a basket of stocks call a stocks index. Investing in stocks index require less research but is subjected to general market volatility and the flipping sentiments of investors.
You only need a major event or rumour to see the volatility and potential losses it can cost– the most recent would be the news of Brexit, causing the U.S stocks index S&P 500 to decline 5.4% within a single day. It is not uncommon for the index to rise and fall in the 6 to 8% range, looking at data from the last decade.
Investing in real estate is largely recognised in Singapore as one of the most lucrative ways to profit from an investment. While you do need a larger amount of capital as compared to other types of investments, it also gives the market an edge – less liquid and lower volatility.
Over a period of 11 quarters (almost 3 years), Property Price Index (PPI) for private residential properties only contracted 9.4% from its peak in 2013, under the pressure from the lacklustre economy and property cooling measures by the Singapore government.
Other benefits of investing in the property include its function as an inflation hedge since property prices typically rise with inflation. Real estate investment is also considered more stable as the asset is tangible (as compared to ‘paper’ assets) and you can always seek out refinancing options to lower your cost of investment.
One huge upside to buying a property for investment purposes is the rental income. Rental returns are much more stable since tenant contracts are usually pre-committed and come with at least a month or two’s deposit should the tenant decide to leave.
The monthly rental income also acts as an immediate cash flow, unlike the dividend earnings you will receive from stocks which are unpredictable and are unlikely to match your rental income, especially in land-scarce Singapore.
Investors should also remember that at the end of the day when it is time to close out the investment, they can look forward to capital appreciation, or even pass down the asset to the next generation. While Singapore’s property market has been on a recent decline due to the cooling measures implemented in 2013, historical figures have shown huge gains captured from owning real estate:
From 2003 to 2008, property prices doubled within a short 5 years and continued to appreciate by 20% by 2016.
Icon (Location: Gopeng Street)
Transacted prices (Average psf $)
Similar to other investments, there is a need to look for “hidden gems” and do enough research to ensure that the property you are looking at is a good buy. Look for areas where the government has committed to developing, as well as locations accessible to public transport, which is especially important for tenants who are professionals.
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