Managed Funds Versus Investment Property – Which Is Best For A Business Owner’s Retirement Strategy?
For anyone who owns a business the day will come when they wish to retire and the sooner they make plans for that the better. By plans, we are talking about financial plans and that is why speaking to financial advisors to discuss investment planning should be arranged. Investment planning and creating an investment portfolio is a surefire way of ensuring that when you retire and hand over the reins of your business to someone else, you are financially secure.
Your discussions with your financial advisors will include them explaining to you the many choices you have for investing. Investing planning is not just about how much you are going to invest, but the diversity of those investments, which asset classes you are going to invest in, and which individual investment opportunities you are going to select.
Two of the investment options which are most discussed and compared are property and managed funds. Property investment is investing in either residential or commercial properties or both. Financial benefits accrue from either rental income or the increase in property values, or both. Managed fund investment sees multiple investors pooling resources, and the value of their individual investments, determine what their share of the total return is.
Both property investments and managed funds investments have their pros and cons, which we are sure your financial advisors will discuss with you when you are assessing which investments will ultimately fund your retirement. To give you a heads-up, we have highlighted their main pros and cons below.
Property Investment
PROS
Capital Growth: As the value of your property increases so does the value of your capital investment
Ongoing Rental Income: The rent you receive from domestic or commercial tenants is an ongoing and regular income.
Low Volatility: Whilst property values do change, they do not move in as volatile a fashion as other investment types, such as company shares or currencies.
Reduced Taxes: Your financial advisors can highlight ways of reducing your tax liabilities by offsetting them against costs such as loan interest and property repairs.
Not Complex: Given that you may have already bought your home, you will know that, as an investment, property is relatively easy to understand.
CONS
Property May Be Vacant At Times: If your tenants move out and no one else moves in, your property is empty and thus not generating rental income.
May Not Sell Quickly: In a stagnant property market, your property may take several months to sell and may even not sell at all.
Value Can Go Down: As you may have experienced, property values can go down.
High Entry Costs: Properties cost anything from $150,000 upwards.
Maintenance And Repairs: You are responsible for paying for the cost of maintenance and repairs to your properties.
Managed Funds Investment
PROS
Managed Professionally: A huge benefit of managed funds is that professional investment managers will oversee them.
Diverse Portfolio: Your financial advisors will counsel you to have a diverse portfolio of investments, which is exactly what a managed fund provides.
Can Be Sold Quickly: Should you need a large influx of cash urgently, most managed funds can be sold quickly.
Low Entry Cost: Managed funds have a much lower cost of entry than property investment.
Can Increase Investments Easily: You can usually increase your investment in managed funds easily and by investing small amounts.
CONS
May Underperform: The value of any managed fund you invest in, can diminish.
Regulatory And Tax Changes Can Affect Values: Legislation, regulations, and taxation rules changes could negatively impact managed fund values.
High Fees: Some investment management fees can be high.
