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Property is not the only option

By Jozef Spiteri
This article is published on: 20th April 2024

The information within this article is for information purposes and is not to be construed as investment advice or recommendation. Please consult with your investment advisor before making any type of investment.

I have been working as a financial adviser for over two years, during which time I have had many meetings and discussions with clients and investment professionals. Views of course vary on how best to achieve investment success without taking unnecessary risk.

One topic which often comes up in discussion is whether owning a rental property is likely to produce higher returns than a conventional multi-asset investment portfolio (with exposure to global stock markets, bonds, commodities, commercial property and cash).

When faced with this question, my answer is always simple – if your finances allow, why not invest in both, over time? For most of us, particularly when younger, we don’t have the resources (or expertise) to invest extensively (or successfully) in rental property and conventional multi-asset portfolios. However, if and when circumstances allow, having exposure to both can provide valuable diversification and reliable income streams from unrelated sources. Conversely, over-exposure to a single type of investment creates excessive risk and vulnerability in our finances.

Let’s say you have a pot of €500,000 to invest which you might have accumulated over time, or perhaps inherited. Investing exclusively in rental property might seem sensible, and safe, but such a decision should always recognise the longer-term expenses associated with property ownership. In calculating a realistic rental yield, as a landlord it is essential to take into account maintenance bills, occupation/vacancy rates (seldom is a property occupied for the duration of ownership), refurbishment costs, possibly letting agent fees and insurance premiums, tax liabilities and other expenses, all of which of course dilutes the eventual return, often significantly.

Now you might consider putting your money into technology stocks (the NASDAQ index has averaged around 15% pa over the past 10 years), or crypto currency. The potential returns are highly appealing indeed, but perhaps you would be underestimating the levels of volatility, and the risks of dramatic losses, that come with such speculative investing. Is that something you can afford, financially and psychologically?

investment portfolio

Big bets can be rewarding, or ruinous.
Alternatively, you could spread your investment across a diverse range of holdings – from international equities (shares) to fixed interest (corporate and government bonds), to commercial real estate, to infrastructure projects, commodities, and cash – through a professionally managed multi-asset portfolio. A well-run strategy will balance capital growth with capital protection and be fully aligned with your personal risk profile. With appropriate advice, and a disciplined, long-term approach, it is entirely possible to achieve investment success without taking undue risk.

Forget get-rich-quick. Patience pays.
And consider too that bricks and mortar alone are not necessarily the foundation for achieving financial security. To accumulate wealth through investment, it is often diversification that produces the greatest rewards.

Our recommendations to clients vary on a case-to-case basis.

To discuss your circumstances and investment planning options, please get in touch. Our initial consultations are free of charge and entirely without obligation.

The Spectrum IFA Group Limited is licensed to provide investment services, under the Investment Services Act, by the Malta Financial Services Authority.

Article by Jozef Spiteri

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