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Information on property investment basics—including risk/return balance and diversification—that can help you decide your investment style.
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Property investment
Contact us
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Contact us for more investment info |
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email |
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Westpac branches |
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phone 0800 177 277
(Monday to Friday,
8am to 8.30pm;
Saturday
9am to 3pm) |
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| Investment is about putting money aside to work toward a long term financial goal. |
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| The main investment sectors are |
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shares |
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property |
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fixed interest |
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cash (like shorter-dated term deposits). |
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| The potential risks and returns for each of these sectors are different. |
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| ‘Risk’ is the chance you might not get all your money back or your returns end up being lower than you expected. Risk includes how much the value of your investment can rise or fall from year to year—its ‘volatility’. |
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| ‘Returns’ are both the income you get from your investment and how much it grows—or declines—in value. |
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| Higher returns can help you reach your goals more easily. With higher returns, comes higher risk. |
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| You need to be comfortable with the level of investment risk involved with different investments and consider your personal situation. |
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| If you’re older, or your income is not secure, you are likely to be more cautious in your approach than someone with good earning potential ahead of them. |
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| One way to help spread your risk is through diversification. |
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| Diversification |
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is a basic rule of investment |
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means spreading investment risk so a poor performance in one area doesn’t affect all your money the same way at the same time. |
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| You could spread your funds across |
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shares |
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property |
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fixed interest |
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cash. |
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| It’s also important to diversify within the sectors, for example you should have shares in a broad range of companies, industries and countries, or bonds with varied terms from a range of organisations. |
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| If you are planning to build a property investment portfolio |
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think about how you can diversify—maybe buying in different areas will cater to different parts of the rental market |
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try and acquire different types of assets so your future is not tied solely to property. |
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| When investing in property |
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make sure that the property income and any tax advantages cover the cost of ownership—loan, rates, repairs, mortgage repayments etc |
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you'll need the means to cope financially if something goes wrong—if you can’t find tenants or the property needs urgent repairs. |
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| If you get the balance right |
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you could end up owning several properties paid off over time |
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an added bonus is if the property rises in value. |
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| Don’t rely on a capital gain |
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property can go up and down in value and at times it can be hard to sell |
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you could make a loss if you need to sell in a hurry or at the wrong time |
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however, if the income covers the costs, you could wait for better times to sell. |
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| The investment ladder provides a relative guide to these main investment sectors. |
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| The higher up the property investment ladder you go |
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the greater the potential returns |
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but the greater the risk you could lose money if you have to cash in at some point. |
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Higher returns can help you reach your goals more easily – but with higher returns, there comes higher risk. So, you need to be comfortable with the level of investment risk involved – as you don’t want to lose sleep over your investments. And you need to consider your personal situation.
For example, if you’re older, or your income is not secure, you are likely to be more cautious in your approach than someone with good earning potential ahead of them.
One way to help spread your risk is through diversification. |
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| Diversification is a basic rule of investment. It means spreading your investment risk so that a poor performance in one area doesn’t affect all your money the same way at the same time. |
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| So some of your money could be in shares, some in property, and some in fixed interest or cash. It’s also important to diversify within the sectors - for example you should have shares in a broad range of companies, industries and countries, or bonds with varied terms from a range of organisations. |
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| If you are planning to build up a property investment portfolio, you need to think about how you can diversify – for instance you might buy in different areas to cater to different parts of the rental market. Part of your plan must also be to try and acquire different types of assets so that your future is not tied solely to how well property is doing at the time. |
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