Booming real estate or FTSE shares? This is how I invest now




I bought my first home in the 1980s. At that time, real estate prices tended to rise or fall steadily. Often each cycle took several years.

Ownership against FTSE shares

However, there was another underlying trend going on. In the long run, house prices have tended to rise, regardless of the ripples along the way. And as I describe the behavior of the real estate market, it seems to me that FTSE stocks, in general, have behaved in a similar fashion over the period.

When I first ventured into the property, I received a lot of advice from relatives and older friends. They suggested that the property’s value would likely increase in the long run. Many encouraged me to borrow as much as I could through a mortgage and extend the repayment period over a long period. Why? Because inflation would likely make repayments smaller as my future income increased over time.

And all of that advice was spot on. The properties I have owned have appreciated in value before the ravages of price inflation. And the mortgage payments have become a much smaller percentage of my income. I even managed to buy an investment property in one of the troughs of the market in the 90s and sell it for a much higher price when the market recovered a few years later in the 2000s. .

However, the real estate market has changed from the conditions of 30 or 40 years ago. For example, these cycles of ascent and descent are not so obvious to me anymore. These days, it seems like the value of the property usually doesn’t do much but increase. And the lack of a significant drop in the wider market has kept me from investing more in real estate. Even though I still own my house.

The ultra-low interest rate environment and the wide availability of mortgage financing are helping to keep house prices soaring. But I think the current conditions make the prospect of buying bricks and mortar a difficult decision.

Diversification between asset classes

However, I still believe that some of the old advice is probably good. The value of the property will likely continue to appreciate over the long term. Inflation will likely continue to reduce the value of debt. And maybe it’s a good idea for me to diversify between asset classes like owning real estate, stocks in the stock market, and some cash savings.

Because I own my own home alongside cash savings and stock accounts, I am diversified across asset classes. And I am now focusing on growing the value of my equity assets held in a Self-Invested Personal Retirement Plan (SIPP) and an Equity and Equity ISA.

I have built a base of basic investments in collective action vehicles, such as managed funds, investment trusts, and various low-cost, mechanically operated follow-up funds.

In addition to regularly investing new money in these investments, I also invest in the stocks of individual companies. But investing in individual stocks requires a greater commitment of time for research, portfolio management, and monitoring.

However, I like the investment process and look for higher returns than my diversified collective funds. But no result is guaranteed. And each has their own set of circumstances to help inform their own investment strategy.

The post Real estate booming or FTSE shares? This is how I invest now appeared first on The Motley Fool UK.

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Kevin Godbold has no position in any of the stocks mentioned. The Motley Fool UK has no position in any of the stocks mentioned. The opinions expressed on the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a wide range of ideas makes we are better investors.

Motley Fool United Kingdom 2021



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