Property Investment Insights iii

Property investment is easy

A Brief Overview of Asset Classes and Portfolio Construction

A multitude of investment choices is available to you. The magnitude of choice can cause what I call ‘investors ineptness’: a dangerous situation where you can be so confused by the sheer volume of options that you end up not taking actions because doing something is just too hard and time-consuming

It’s so important to bring your focus to the achievement of your needs, goals and objectives and sect investments appropriate to your situation. If you already have investments, this is the time to reassess their appropriateness and perhaps make some changes.

Each year, the best asset class returns will vary from shares to cash or property or bonds, and your allocation to each of these asset classes with having a more significant effect on your returns that whether you but google rather than Amazon. After the GFC (great financial crisis), many people became discouraged by the share market because prices were so low-an idea summed up in the comment by Warren Buffet at the start of this webpage. Being contrarian or doing the opposite of what everyone is doing at the time is often a successful strategy because assets are cheap when they are out of favour. However, quality is difficult to ascertain at these times.

The five asset classes

There are five main asset classes you can invest in. They encompass all of the possible investments someone can make except direct investments in a business that is not listed on a securities exchange (which is not discussed in this website). If you invest through a professional adviser or institution, they will always talk about invest and diversifying your investment among these five key asset classes to reduce risk and to optimise your investment returns over the long term.

Eight attributes of an investment

Before I delve into a description of the five key assets classes, I want to introduce you to the concept of the eight attributes of an investment which will help you understand the features and benefits of each asset class. All investments have eight essential attributes (see figure 4.1), and you need to think about these characteristics and how they interact with your personal needs goals and objectives. Either you’re investing in property or other asset classes, the essential attributes of investment are as follows: risk, return, flexibility, volatility, liquidity, timing, cost, and tax.

Essential attributes of an investment

• Risk
• Return
• Flexibility
• Volatility
• Liquidity
• Timing
• Cost
• Tax

Assets classes Let’s look more deeply at the asset classes and their advantages and disadvantages. The main classes will be discussed in more detail on my blogs articles and monthly insights publications, with tips on how to invest wisely in each class.

• Cash

• Fixed interest

• Treasure bonds

• Corporate bonds

• Mortgage-backed securities

• Property