One of the topics I hear from day to day is that most people\'s intentions are to invest in property as a replacement to retirement annuities although the majority of the time this never materialises. The money that was to be used for property usually ends up enhancing ones social life to the detriment of ensuring a satisfactory retirement plan.
Let\'s say you are pro-active and you do put your money towards property. Is it the wiser option? Have you thought of every detail? New legislation in regards to retirement annuities has made them far more attractive than before and deserves a closer look.
Let\'s look at property. Property is viewed as the \"safer bet\" and your capital grows from year to year without the worry of it depreciating. What about the issues that ensures this steady growth?
Speaking from first hand experience, tenants can be one of your worst nightmares. Finding the ideal tenants is not as easy as some may think. Maintenance is a concern and on occasions can be an expensive exercise. When one\'s lease agreement is up for renewal and they decide not to renew, you could be left without rental income until a suitable replacement is found. The capital/money required to invest in property is far greater than that of a minimum payment to a pension/retirement fund.
Location plays a major role with your properties value and choosing the wrong area could have huge consequences on the capital growth. When choosing your investment portfolio the only Geographic\'s you would have to worry about would be to invest locally or offshore. Obviously, your risk profile would determine your fund selection from conservative through to aggressive. If your fund selection does not perform to your benchmarks, it is quite simple to switch your funds unlike having to try selling your property. If you were to sell your property there could be issues to consider like, capital gains tax, transfer fees, lawyers fees, new bond registrations or cancellation fees and compliance fees. Not all of these would be applicable due to circumstance.
If you had to purchase property, would you not go and collect the rental income every month? Would you neglect the maintenance of the property? Would you only wait until you are retired to check the value of your property? I am sure every person would answer \"No\" to all of those questions and if so, why do people neglect to look after their retirement funds?
If you decide to start a retirement/pension fund, does it not constitute the same amount of attention and scrutiny that your property would normally receive? People I have come across with a retirement fund, I have asked them the same question, \"What percentage returns did you receive over the last year?\" I received the same answer from every person, \"I don\'t know!\" Now if you owned property surely you keep track of its value so why should it be any different to your retirement funds?
When selecting funds you have a wide variety to choose from. You can select a property portfolio if you choose. If you look at our markets at the moment, we have had returns in excess of 40%. Yes, these funds would have to be more aggressive and volatile but if you manage your risk profile there is no reason why you cannot receive decent returns. I suggest if you are one of those people that have a pension/retirement fund and do not monitor their performance regularly, to contact your financial advisor and ask him/her to educate you more on the intricacies of these investment vehicles.
I do not favour one option more than the other, as they are both suitable investment vehicles that if monitored and structured correctly can yield great returns. I feel that not enough emphasis has been put towards educating clients/people about the great potential that pension/retirement funds have to offer.
If you would like to see a spreadsheet calculating projected returns please contact me via my website: http://warrenmcallister.co.za
Warren Mc Allister
\r Senior Consultant
\r Hereford Coastal Financial Services
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