I bought my first home in the 1980s. Back in those days, property prices tended to cycle up or down on a regular basis. Often, each cycle took several years to complete.
Property versus FTSE shares
However, there was another underpinning trend going on. Over the long term, property prices tended to rise, regardless of the undulations along the way. And as I describe the behaviour of the property market, it strikes me that FTSE shares, in general, have behaved in a similar way over the period.
When I first ventured into property ownership I had plenty of advice from older relatives and friends. They suggested property would likely appreciate in value over the long term. Many encouraged me to borrow as much as I could via a mortgage and extend the repayment period for a long time. Why? Because inflation would probably make the repayments less significant as my future income from earnings rose over time.
And all that advice was spot on. The properties I’ve owned have risen in value ahead of the ravages of price inflation. And mortgage payments did become a much lower percentage of my income. I even managed to buy an investment property in one of the market dips in the 1990s and sell it at a much higher price when the market cycled back up a few years later in the noughties.
However, the property market has changed compared to the conditions of 30 or 40 years ago. For example, those up and down cycles are no longer as obvious to me. These days, it feels like the value of property generally does little but creep higher. And the absence of meaningful dips in the broader market has kept me from investing further in property. Although I do still own my home.
The ultra-low interest rate environment and the wide availability of mortgage finance is helping to keep property prices booming. But I think current conditions make the prospect of buying bricks and mortar a difficult decision.
Diversification between asset classes
However, I still believe some of the old advice is probably good. Property will likely continue to appreciate in value over the long term. Inflation will probably continue to shrink the value of debt. And it’s perhaps a good idea for me to diversify between asset classes, such as owning property, stock market shares and some cash savings.
Because I own my own home alongside cash savings and share accounts, I’m diversified between asset classes. And my focus now is on growing the value of my share-based assets held in a Self-Invested Personal Pension (SIPP) and a Stocks and Shares ISA.
I’ve built a foundation of core investments in collective share vehicles, such as managed funds, investment trusts and various low-cost mechanically operated tracker funds.
In addition to putting new money into those investments on a regular basis, I also invest in the shares of individual companies. But individual stock investing requires a greater commitment of time for research, portfolio management and monitoring.
However, I enjoy the process of investing and seek to achieve higher returns than those available from my diversified collective funds. But no outcome is guaranteed. And everybody has their own unique set of circumstances to help inform their own investment strategy.