Whether you have $1 Million or $1 Billion the investment principles are the same.
1. Rule No 1 is to only ever buy value. All investment begins and ends with value.
“Price is what you pay, value is what you get.” Warren Buffett
Markets come and go, but value is what you are left with when the dust settles. A great stock or property, bought at too high a price (or worse!), is never going to be a great investment.
There is an objective, determinable value for any investment, be it stocks, real estate, commodities, works of art, or bonds. Intrinsic value is discussed here.
2. Do your financial planning and live within your means
You need to develop an overall financial plan that integrates and harmonizes your family situation, investment portfolio, income requirements, tax and risk assessment.
Tax structures, family trust and company arrangements can lock you in for decades and need to be chosen carefully. Business succession plans, Wills and Estate Plans need to be clearly thought through.
3. What are the investments options?
There are three investment options:
- Stocks (stocks are small pieces of a business)
- Property and
- “Interest only” assets (bank deposits, government and corporate bonds).
A portfolio of Australian stocks provides an income yield of around 7.5%.
Real Estate Investment Trusts (REITs) yield around 6.0%. REITs invest in major shopping centres, office buildings and industrial parks.
Direct property investment in homes and apartments provide a net rental income yield of around 2.0%.
Stocks and property also provide income and capital growth through rising profits and rents, which translate into rising capital values.
Interest only investments rates range from 0.75% for “at call” bank deposits, to 2.0% for 3-5 year bank term deposits, and 0.9% for 10 year Australian government bonds.
4. What are the risks？
All investments involve risk, be they stocks (business failure), property (buildings depreciate, land can become degraded), or government bonds (inflation).
In addition stocks and property are subject to market fluctuations which can be sharp, large and unpredictable. This is a fact of life, to be accepted as such if you are to invest in stocks and property.
Importantly, while market price fluctuations are inevitable, the income paid by stocks and property generally stays stable and increases over time. You can live comfortably with price fluctuations if you know your income is fairly constant and growing.
“Most companies pay consistent dividends, generally trying to increase them annually and cutting them reluctantly.” Warren Buffett
“Interest only” investments give certainty of capital. However, they return only their nominalcapital, with its purchasing power eroded by inflation, currently around 1.6% per annum in Australia. So called “safe” conservative investments are not so “safe” long term.
5. Watch Fees
Make sure you get value for the investment advice fees you pay.
“Money managers purposely work at manipulating numbers and deceiving investors. They’re selling the fund of fund stuff – it’s really unbelievable, piling on the layers of costs. But if they are good at marketing they don’t need to be good at anything else. The poor guy in the general public is getting a terrible product.” Warren Buffett
The problem with managed funds is that their fees can be high and opaque. Investors need to be aware that they are paying these underlying managed product fees and costs, in addition to wealth advisor and financial planner fees.
See also this related page Family Office
Gavin Ross & Co
At Gavin Ross & Co a portfolio of directly owned stocks, real estate investment trusts (REITS), and cash reserves, individually tailored and managed according to your personal requirements, is the best performing, secure, transparent, and least costly way to invest.