Dipping your toe into the stock market can be a daunting experience. A lot of people feel more comfortable with investing any saved money into residential property. In Australia, this has been usually a great idea – As well as income provided by your renters, there are tax advantages in negatively gearing your property. However, residential property has run long and hard and property yields are looking a little bit skinny. Corelogic reports that, as of September 2016
- Australian gross rental yields for houses are currently recorded at 3.1% and unit yields are 4.1%, both of which are record lows.
Prediction of future property yields and capital growth rate depend on a complex mix of supply, population growth and interest rates. The low yields and the large sums required to get into the housing market make housing a difficult first investment in capital cities – and Slack Investor thinks the days of big capital gains for residential property are behind us.
I am not against residential property and it is one of the Slack Investor foundation blocks that you must have a plan to own your own home – in a place that you like – before financial independence and retirement.
For many, the forced savings commitment that a home loan provides is a great way to wealth accumulation – the money disappears from your account prior to you having a chance to spend it! It is a pity that much of the home loan payment is portioned to loan interest – but this is not such a concern for a long term commitment, especially in times of capital appreciation.
Owning a home gives Slack Investor a great joy that cannot be measured in financial terms alone.
So where should you start investing … Bank cash rates are low (1.5% from August 2016) and several punters think that they may be low for some time. Slack Investors favourite banker, the Reserve’s Glenn Stevens has just cut the cash rate to 1.5% and thinks that the low inflation environment and conditions for Australian economy growth are expected to remain the case for some time.
Cash is safe and reliable though, and is the best place for your cushion while your are saving up your first investment bundle. But putting your money in the bank will not make you financially independent … you have to take some risk.
Share investment, is not recommended for very short time frames as the stock market can be very volatile … but If you have some money set aside that you can afford to leave in the market for 2-3 years – It is an excellent place to start your investing journey. Most Australians already have exposure to shares through their superannuation funds … and if you look at share investment as a chance to become a company part-owner, why wouldn’t you give it a go!