April 2010

Given the recent worldwide stock market correction, there has been increasing interest in property investment. Quite unsurprisingly the flight to intrinsic assets is very common after a stock market fall and the subject of whether shares or direct property is best has been one pondered for many decades. The truth of the matter is that in the interest of diversity, both of these growth assets should be constituents within an investor’s portfolio. The more important question is what are the benefits and costs of holding both investments and what proportion of each asset class should an investor hold?

3 simple steps to get you started:

• An often over looked step is to establish some investment goals before investing in either asset class. This will help you monitor the investment and it also helps take the emotion out of the process.

• The second step is to undertake a risk profile process – This will often reveal a person’s real attitude towards investment risk and return. Risk profiling can also highlight a preference for some asset classes over others based on identified objectives.

• Third step would be to determine how much experience you have with either asset class. If you have more experience with property, then a larger weighting to direct property might be warranted.

Tax and Ownership

The investment structure you choose, will determine the amount of tax you pay and ultimately affect your net return from the investment. There may be other personal liability and estate considerations as well as transaction costs that the right investment structures can help mitigate. The most common types of ownership structures are tenants in common or individual owner, a trust / super fund or a company. All of these structures have different tax outcomes and costs associated with them and some can minimize liability, so it is important to choose
the best structure before investing.

The basis for buying property

The fundamental argument for buying property in Australia rests on the fact that house prices are determined by supply and demand factors. In Australia unlike the US, we are faced with a growing population, low unemployment (5.9% -RBA) and an undersupply of property. These factors rightly make property a highly sought after asset.

Property never falls?
The perception however, that direct property significantly outperforms shares, or worse still, never goes down, is a very dangerous assumption to make. From 2003 to 2006, we witnessed the decline of prices on most of the eastern seaboard metropolitan areas and while the impact has not been devastating, it certainly has affected the balance sheet of many mums and dads. It is also common knowledge that the efficiency of pricing data for unlisted assets like residential real estate leaves a lot to be desired. There is no accounting for ‘added value’ that owners may contribute towards a property, an example of which is, renovations and improvements. Factors such as these can add stability to price movements, along with the fact that the average Australian typically holds onto their home for at least seven plus years.( ABS – census) The more recent practice of purchasing multiple properties was prevalent due to lose lending conditions and the perception that property is safer than any other investment. It is worthwhile noting, that when the residential property market takes a turn for the worse you can be severely disadvantaged if the majority of your assets and income sits outside of the highly tax advantaged superannuation and pension system. Most of us have heard stories or know of friends and colleagues that have overstretched their financial resources by purchasing more than one investment property at the same time. While they typically adopt a sound ‘buy and hold’ strategy, the unfortunate fact is, from 2003 to 2007,they would have sacrificed an opportunity cost in the Australian share market (e.g. ASX200 – last equity bull market) where returns were 20% plus over this period. The lesson to be learnt is that, having all of your eggs in the one basket (or asset class) can have dire effects in achieving your wealth creation goals.

Yale economist and author of Irrational Exuberance, Robert J Shiller has created a real house price index (US property market) for existing dwellings dating back to the 1890s.He points out that in the last decade there has been a tremendous, irrational growth spurt in housing asset prices. Ignoring the effects of inflation, house prices have doubled in 10 short years. In Australia since 1986, house prices have gone up more than 400%, and when the effects of inflation are removed we have seen prices more than double. Shiller’s analysis should be enough
for anyone to question if property growth is sustainable at present levels.

The Reserve bank of Australia’s governor, Glen Steven’s recently expressed similar concerns, about property investment as a “riskless” path to riches. He said “I think it is a mistake to assume that a riskless, easy, guaranteed way to prosperity is to be leveraged up into property.” This is a very popular
misconception and one hopefully that all investors will take notice of.

The only real thing that separates shares from property as far as tax goes is that the return from shares comes mostly from capital gains, but the return from property comes mostly as income. Capital gains are generally more tax efficient than income because capital gains tax can be deferred indefinitely by holding off selling and also attracts a discount for long term investors (unless you are a company); whereas income is taxed in the year
it is received. On this basis, it can be argued that shares are more tax efficient than property.

Asset Class Performance
To put this argument into perspective, let’s look at the returns for different asset classes over the last twenty years. What we know is that there were times when shares underperformed direct property, listed property trusts and even fixed interest, however, generally for over a 10 to 15 year period, shares have historically
outperformed. The research conducted by the AXA research team, upon common indices across asset classes, highlights the annualised returns from:

Cash: 5.7%
Median House Price: 8.75%
ASX 200: 10.2%
ASX 200 Property Trust: 8.1%
MSCI World Index 5.9%

Other considerations: Holding costs

So finally we come to costs. There is no doubt that the higher acquisition costs involved with property, such as stamp duty, land tax, loan application fees and the ongoing costs of council rates, utilities and property management fees, can compare unfavorably with shares and managed funds. One very important factor to consider is that property is not as liquid as a share or managed fund investment and while the disadvantage of shares, is lower borrowing ratios and higher borrowing rates, compared to property; all without the effect or fear of margin calls; the overall cost to return and time management benefits, suggest that shares might be a cheaper and easier to manage investment, than property. The reason however for the popularity of property investments can be attributed to the familiarity and intrinsic nature of property assets, compared to shares and managed funds.

Summary:

There is little doubt that any investor would be doing themselves a disservice if they were not to invest in direct property. Having said this, the price you pay and the location in which you buy, will ultimately be the difference between good and great returns. From a tax, cost and quality of asset perspective, both property and shares are equally appealing. The evidence though seems to slightly favour shares as a better holding, due to the better tax treatment of capital gains and the lower costs, compared to direct property ownership.

It must be said though that, quality research and a thorough assessment of any investment must be made when purchasing either shares or property and it is reasonable to say that, Investment property should not be ignored as part of a diversified portfolio, but it should however be treated as no more
than just a slice of the investment pie.

Written by Robert Joseph – Practice Principal Freedom Wealth Advisers

SOURCES OF DATA:
• Irrational Exuberance, 2nd Edition – Robert J Shiller
• RBA governor Glen Steven’s comments on property – AAP March 29th 11.18am
• Australian Housing figures: Australian Property Monitors
• AXA Research team
S&P/ASX 200
MSCI World Index
Cash returns – based on the 90 day bank bill rate
ASX – Listed property
• Nicholson Cartoons -

This editorial provides general information only. Before making any financial or investment decisions, we recommend you consult a financial adviser to take into account your particular investment objectives, financial situation and individual needs. (AXAFP) and its Authorised Representatives do not accept any liability for any errors or omissions of information supplied in this editorial.

Your body is an absolute reflection of your healthy lifestyle choices. For the most part it is very basic to tell what someone thinks about their own health which is seen in their physical body and how they look. You are able to tell when one cares about themselves and they appear physically fit while at the other end of it you realize the people that do not care about their health seeing that they are very overweight and you should see them out at restaurants eating the absolute worst foods possible.

Before I go any further, I know there are some people out there by now yelling at the top of their lungs saying “But I’m born this way!” Unfortunately, Well, I’m not a medical professional so I cannot answer that question towards a biological standpoint. But my personal opinion is that the “genetics” reasoning is thoroughly laughable. Your skinny friend that eats everything she wants and never gains an ounce of weight is like that because she has a faster metabolism. That fast metabolism is because they are being physically active. It’s the same thing for the person that is overweight that continues to keep getting bigger and bigger. The reply to that is to start making healthy lifestyle choices. Begin consuming beneficial healthy foods rather than junk and begin exercising. Your metabolism will then increase which will also help you burn fat.

So what are these decisions that you need to make so that you can live a healthy life? As I said, start by fixing those eating habits. And this does not only mean to count how many calories you eat & drink. Even if you meet your calorie goals for the day, it doesn’t mean you’re being healthy. You should watch what foods you consume as part of those calories. If it’s made up of candy and chips, you’re not doing your body any favors. So begin by eating fresh fruits & vegetables, lean meats, and high protein foods. In fact, as you get started with a new healthy lifestyle plan, don’t even walk up and down the aisles at the supermarket. Stick to the edge of the store and you should find everything you need to eat healthy (except for the bakery section).

You should additionally get started in some sort of regular workout program to begin to improve your healthy lifestyle choices. If you’re very overweight, you obviously would not run a race tomorrow or begin doing the exercises which an athlete would do, but you have to begin somewhere. Rather than sitting on the couch today, take half an hour and go for a walk. Then tomorrow do exactly the same, but push yourself to take fifty additional steps in the same amount of time. Slowly increase the number of steps and/or minutes until you can run the entire 30 minutes. This will not happen overnight and it could actually take you several months to get to this point depending where you currently are. While continuing to work to that, add a little bit of strength training to your exercise program. This is very good for you and will be of great help to your body and increase your metabolism.

The combination of a beneficial nutrition and a little physical activity will put you on the correct track to having a life of health. Those eating habits will consist of about eighty percent of how you look, so it is obviously of great importance. Your workout routine will consist of the other 20%. This may allow you tone your body as well as giving you that extra push for weight loss and become healthy.

Your choice to live a healthy lifestyle is your own decision. No one can make you a believer of it and it has to be something you want to have. If you do not want to change how you live it just will not happen. You must desire that vision and set the goals for yourself in order to have success with these healthy lifestyle choices.

The first stage of almost any trip is planning stage. You should plan everything about where you are going to get and you should plan all resources that you might need in your journey.

As for resources, typically you will need the same “resources” in any kind of travel, e.g. some clothes, good footwear, some medicine, money, documents and so on. It sounds like a time-consuming task to get all these things into one place and don’t forget anything, but there is a secret, which unveil how to get all things ready in just 30 minutes. The ideas is to create a check list of things that you usually should take with you, for the first time this list will not be complete, but once you have traveled two or more times, you will have your own personal travel check-list.

The best advice would be – it is possible to buy anything that you might forget, so make sure you have not forgotten money, your travel passport and health insurance. Make sure you are prepared to various weather conditions, and for sure, it is a good idea to check weather report before you start you journey.

The second stage of planning trip is planning your future route, e.g. places that you want to visit. The idea is to spend not much time on this task, but get good results when you will be in place. If you already have a good printed map of the city that you are going to visit, then it would be possible to create a route, plan everything at home. If you don’t have such a map – it is not a problem, when you will arrive you should find the tourist office, where you will have a map of the city. Usually these maps already contain necessary information about top places to visit, but only about places located in the city.

Good idea about planning trip is to find and print out information about places that you wish to visit and that you find interesting. When searching for this information, make sure you have not just the name and description, but preferably the address of the point of interest and some information about transportation. If you are using a public transport, then it is important to know what stops you will need and what line numbers you need to take and in what direction.

Make sure you know about opening hours. For instance, some places (like gardens) are not opened in winter. Most museum don’t work on Monday, and most shops are closed on Sunday. If you are interested in churches, then have in mind that you will be able to access most religious places on Sunday only after 13-00.

General recommendations about planning trip are: get all things you need and create a checklist for future trips, get information about places of interest and make sure you know their opening hours. Plan your trip accordingly and don’t forget to get some time for rest and food.

The ability to obtain an online education degree has opened the educational doors for many students who cannot afford to attend school on campus as a full-time student. Distance learning courses definitely provide some advantages over the traditional college education. But, because of the methods of delivering and receiving the material, students must consider the 7 things necessary in approaching an online education successfully.

1. Choosing the best education online institution – Make sure the institute for higher education chosen has adequate resources and accreditation recognized by the proper authorities. Unless authenticity can be verified, find another school. Sadly, unscrupulous degree mills offer degrees with short-term or no real education. Thus, the diplomas are bogus and absolutely worthless. Find a school that provides solid education, ample student support, and the facilities necessary to succeed in your distance learning.

2. Check the cost vs. benefit – Many students don’t check the cost-benefit factor before enrolling into an online education degree college. We are all aware that acquiring an education requires huge amounts of money. But a smart move is to first compare with what the future earning potential of your profession will be once you earn the degree. Once you figure this out, only then would you determine if it makes sense to acquire an online education degree.

3. Degree validation by employers – No wonder many employers are wary of online degrees. With bogus institutions literally selling degrees, employers have good reason to be doubtful and cautious. Therefore, immediately alleviate any potential misgivings by your prospective employer by offering verification of accreditation through an agency sanctioned by the U.S. Department of Education and CHEA.

4. Discipline, determination, and time – First time distance learning students are often surprised by the amount of discipline necessary to stay on task and complete the online assignment. It takes unfaltering determination to achieve an online education. In addition, without regularly scheduled classes, it is essential to exercise good time management skills. To keep focused, without the physical presence of educator and peers, it is important to establish communication with other students to have another push toward success in your education degree online

5. Utilize all the facilities provided by your college – Many education degree online courses provide online lectures and email access to facilitate communication among students, lecturers and administration staff. It’s important to take full advantage of these services as they keep you “connected” with your accredited online college. It helps further your motivation in your studies when you make use of these facilities to stay in touch.

6. Make use of credit transfers – Many online education degree colleges allow students to transfer their credits from courses they took in previous colleges, whether online or traditional. By doing this, it means students don’t have to repeat courses they learnt before. For this to be effected, it’s important for a student who intends to pursue an education online to make sure they get transcripts and results from their previous universities or colleges and make them available to their accredited online college so they can be passed as transfer credits.

7. Take advantage of technology to complete your class work – Another factor for online education degree success is the opportunity to take advantage of all the conveniences that technology provides. Many accredited online colleges provide students with online digital libraries, databases and resources that a student can use to complete their course work and assignments. In most instances the cost of these facilities is already included in the tuition fees. Thus it makes good sense to make full use of these resources to your advantage.