Invest equities long term

[cremeegg]

If you could get the mortgage and put the 120k in shares back then I wonder how it would compare. Leverage is powerful.

I don't believe that you could ever get a 25 year loan to purchase shares secured on the shares alone.

 

[cremeegg]

We we look at long term projections for an investor, we typically use annualised returns of 6%. Investors tend to be happy with that level of return over the long term.

Over the last 10 years, the MSCI World Index has returned 14.08% and the S&P 500 17.77%. To get anywhere near our 6% return, there will have to be a major crash (we seem to have completely discounted the -33% fall in one month when Covid struck and the world's economy shut down)
Now, that is not to say that crashes aren't unpleasant and no one likes seeing the value of their money fall like a stone. But it is part of investing and it is factored into your long term returns. People tend to think of returns like a straight line, 6% every year for 20 years will get me €x at the end. But it doesn't work like that, some years are great, some are terrible. But if you stick it out, your average return ends up at 6% per annum.

For example, I did a review recently for a client who made a single premium contribution in 1995. That money has seen the dotcom crash, the credit crunch as well as the Covid crash. It has also experienced the upsides too. The annualised rate of return over the 25.5 years the money was invested? 6.2% per annum.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

The Economist, not known for being down on capitalism, suggests that future returns may reflect a different paradigm.

Young people stand to make dismal returns on their investments

All the more reason for Generation Z to invest wisely, argue the authors of a new report

www.economist.com

 

[Brendan Burgess]

An example where a property in a reasonable location, purchased at a reasonable rental yield, and not promoted by some dodgy developer or investment manager, worked out badly.

That is a ridiculous specification. You are asking me to specify a successful investment which was not successful.

I might as well ask for someone to identify a share which was bought in a good company which was not overleveraged which had a good future and which was reasonably priced which then went bankrupt.

Brendan

 

[cremeegg]

That is a ridiculous specification. You are asking me to specify a successful investment which was not successful.

I might as well ask for someone to identify a share which was bought in a good company which was not overleveraged which had a good future and which was reasonably priced which then went bankrupt.

Brendan

I didn't intend it to be a ridiculous specification. I am simply saying that property investment sensibly done even using significant leverage is not risky.

That the nature of a mortgage means that the risk usually associated with leverage is largely mitigated.

 

[AJAM]

I didn't intend it to be a ridiculous specification. I am simply saying that property investment sensibly done even using significant leverage is not risky.

That the nature of a mortgage means that the risk usually associated with leverage is largely mitigated.

Not sure that was the general sentiment between 2009 and 2013

 

[Jim2007]

The problem with this is that you think it is a good return.

I invested €12,000 in an investment property in 1999 (10% deposit). I have collected over €300k rent in that time. Profit after interest and capital repayment approx €150k. While there was no guarantee with that investment, none of those numbers are in any way exceptional.

That is an annual return of 68% if my maths is correct. Before looking at any capital appreciation.

But you are not talking about investing in property in this case. You are taking about being in the property business and that is not the same thing, just like buying shares in a company is not the same as setting up and running the company. In both cases you are providing more than just the capital and you should expect the returns to be higher.

The literature, and there is plenty of it, rightly classifies property as a high risk, low return asset class in the context of investing not in the context of running a property business.

 

[NoRegretsCoyote]

That the nature of a mortgage means that the risk usually associated with leverage is largely mitigated

Sure a mortgage schedule is reasonably predictable.

But on the income side private rents fell 25% 2008-12, voids increased a lot too.

The rental business with high leverage is high risk. A lot of people who bought in 2006 are getting out now with a sigh of relief. A capital loss after a decade and a half and only breaking even in cash terms is nothing to write home about.

 

[Baby boomer]

Use

Sure a mortgage schedule is reasonably predictable.

But on the income side private rents fell 25% 2008-12, voids increased a lot too.

That's true but running the numbers initially you should account for this.

The rental business with high leverage is high risk. A lot of people who bought in 2006 are getting out now with a sigh of relief. A capital loss after a decade and a half and only breaking even in cash terms is nothing to write home about.

I bought a BTL in 2005 (agreement signed in 2004 so not quite at peak price.) Interest only tracker at ECB + 1%. It only came out of negative equity in 2020 but it has been a superbly profitable investment for me. And (nearly) all with the bank's money, not mine.

 

[NoRegretsCoyote]

but it has been a superbly profitable investment for me.

Was it superbly profitable in 2007 when ECB rates +1pp were 4% and gross yields about the same? After tax?

So a negative equity BTL for a decade and a half wasn't a drag on your life choices or borrowing ability. But that wouldn't be the case for many people, and rarely clear ex ante.

 

[DK123]

Not sure that was the general sentiment between 2009 and 2013
View attachment 5990

I would like to see this graph extended from say 1995 to 2022 and also an equities graph from 1995 to 2022 and compare both to see the big picture because i think that 8 years is a bit short for long term investors and also this graph relates to the years wnen people went crazy about buying and flipping property etc. and then there was a catistropic crash in both property and equities.

 

[moneymakeover]

Property index since 1970

Fred

Residential Property Prices for Ireland

Graph and download economic data for Residential Property Prices for Ireland (QIEN628BIS) from Q1 1970 to Q2 2024 about Ireland, residential, HPI, housing, price index, indexes, and price.

fred.stlouisfed.org