The mother in law
My mother-in-law has a house for sale. It's a very nice house in the nicest part of town. She bought it twelve years ago and was assured by all that a Victorian vicarage-style detached house with a nice garden would be a blue-chip investment. But was it? Leaving the figures aside for a moment, the problem that she has is that she can't sell it, because no-one is making an offer for it. Maybe the potential buyers are all waiting for the Brexit results before flashing their cash. Mother-in-law thinks the house is worth £x,000,000. The market seems to disagree.
Accepting that mother-in-laws actions were not just about investment (although it was a strong factor in buying the house), lets have a look and see how she would have done with an alternative strategy: buying shares in a property investment trust. Lets say she bought shares in the TR Property Investment Trust (TRY). The graph below shows how she would have got on:
The dark line is the price of TRY. It looks like it has gone up 180% over the past twelve years. So if she had invested £800,000 in TRY twelve years ago, she would now have assets in TRY worth £1,440,000. She would also be able to sell these shares at the click of a button. But you can't live in a share, you still need a house to live in. She could, of course, have rented a house and not had to worry about the maintenance or the renovations, but mother-in-laws don't keep track of the cost of those things, on the whole. By the way, she wants more than £1,440,000 for her house, which suggests that she is maybe being optimistic.
But what about the other line, the gold/yellow line? This is the value of shares in the Scottish Mortgage Investment Trust (SMT). This is a business that owns shares in other businesses. It is the UK's largest investment trust. If mother in law had spent £800,000 on shares in SMT, that investment would now be worth £2,560,000. These shares could also be sold at the press of a button! OK, there would be tax to pay. But she probably would not sell it all at once, and there is an annual tax-free capital gains tax allowance of £11,100 per individual.
So, its obvious then, that buying shares in an international investment trust, such as SMT is the best bet, in the long-term?
Well, no, actually. Above is the graph of TRY and SMT over a 23yr period, which suggests that property has been the better long-term investment strategy. Over 23 yrs, the TR property investment trust has returned 1,600% . I bought my house about 23 yrs ago for £120,000. If, instead, I had spent the money on TR Property shares, I would now have shares worth £1,920,000. This would have been a much better investment than my house! The price of TRY shares has been quite volatile with a massive rise from 2002 to 2007, followed by a precipitous fall from 2007 to 2009, during which time the share price more than halved. Could I have tolerated that sort of reduction in value of my shares? Possibly not.
What about the future? Will property outperform the general stock market over the next 23 yrs? Nobody knows! That is why I have an investment strategy that seeks to invest in different asset classes and take advantage of price rises, but to avoid the precipitous drops in price that do occur, as occurred in the property market in 2007 and in the stock market in 2009.
If you are interested in following my strategy, then consider becoming a member of my website for a modest monthly fee. Members find out about my trading techniques and get up-to-date about my trades when I do them.
I have a number of trading techniques:
I am not a financial advisor. I am not licensed to give you financial advice. I don't even know what your financial situation is, so how could I, anyway? I am simply writing about investing and trading using my styles. I think it's interesting! My girlfriend disagrees, she thinks it's boring. What do you think? Are you going to become a member of my site?
Mother-in-law's house is still for sale, by the way. I'll let you know when it's sold!
Have a great week!
Accepting that mother-in-laws actions were not just about investment (although it was a strong factor in buying the house), lets have a look and see how she would have done with an alternative strategy: buying shares in a property investment trust. Lets say she bought shares in the TR Property Investment Trust (TRY). The graph below shows how she would have got on:
The dark line is the price of TRY. It looks like it has gone up 180% over the past twelve years. So if she had invested £800,000 in TRY twelve years ago, she would now have assets in TRY worth £1,440,000. She would also be able to sell these shares at the click of a button. But you can't live in a share, you still need a house to live in. She could, of course, have rented a house and not had to worry about the maintenance or the renovations, but mother-in-laws don't keep track of the cost of those things, on the whole. By the way, she wants more than £1,440,000 for her house, which suggests that she is maybe being optimistic.
But what about the other line, the gold/yellow line? This is the value of shares in the Scottish Mortgage Investment Trust (SMT). This is a business that owns shares in other businesses. It is the UK's largest investment trust. If mother in law had spent £800,000 on shares in SMT, that investment would now be worth £2,560,000. These shares could also be sold at the press of a button! OK, there would be tax to pay. But she probably would not sell it all at once, and there is an annual tax-free capital gains tax allowance of £11,100 per individual.
So, its obvious then, that buying shares in an international investment trust, such as SMT is the best bet, in the long-term?
Well, no, actually. Above is the graph of TRY and SMT over a 23yr period, which suggests that property has been the better long-term investment strategy. Over 23 yrs, the TR property investment trust has returned 1,600% . I bought my house about 23 yrs ago for £120,000. If, instead, I had spent the money on TR Property shares, I would now have shares worth £1,920,000. This would have been a much better investment than my house! The price of TRY shares has been quite volatile with a massive rise from 2002 to 2007, followed by a precipitous fall from 2007 to 2009, during which time the share price more than halved. Could I have tolerated that sort of reduction in value of my shares? Possibly not.
What about the future? Will property outperform the general stock market over the next 23 yrs? Nobody knows! That is why I have an investment strategy that seeks to invest in different asset classes and take advantage of price rises, but to avoid the precipitous drops in price that do occur, as occurred in the property market in 2007 and in the stock market in 2009.
If you are interested in following my strategy, then consider becoming a member of my website for a modest monthly fee. Members find out about my trading techniques and get up-to-date about my trades when I do them.
I have a number of trading techniques:
- A daily trading technique that aims to make a tax-free income via spread-betting. This is currently up nearly 25% since then end of January this year.
- I have a weekly trading technique that seeks to take advantage of trends in different asset classes, as well as avoid the dips. This is done tax-free via an ISA.
- I have an asset allocation technique that keeps my SIPP investments safely spread across different asset classes, and takes advantages of price changes to 'buy low and sell high'. I discussed this briefly last week. This technique only requires me to work on it twice per year.
- New! I am about to start a new investment strategy. This is a 'once per year' investment strategy, using my ISA allowance, so it too will be tax-free. I will be buying 12 shares and holding them for a year, and then re-assessing their performance. You might have heard of the 'Dogs of the Dow' strategy? It has some elements of this, but is more sophisticated, I think, yet it is still elegantly simple. I have not invented this myself. As with all of my investment styles, they are based on the work of other, much brighter people than me. I simply tweak them and implement them, and, I hope, make them easily to understand and to follow, by regular people like you and me.
I am not a financial advisor. I am not licensed to give you financial advice. I don't even know what your financial situation is, so how could I, anyway? I am simply writing about investing and trading using my styles. I think it's interesting! My girlfriend disagrees, she thinks it's boring. What do you think? Are you going to become a member of my site?
Mother-in-law's house is still for sale, by the way. I'll let you know when it's sold!
Have a great week!
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