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The best investing books come in two main styles; those that offer facts, data & information and those that offer an opinion. Both are incredibly useful - but we need to be able to identify which books are which. Welcome to Money Clinic, the weekly podcast from the Financial Times about personal finance and investing. I’m Claer Barrett, the FT’s consumer editor.
Financial Assets, like shares and bonds, don’t have either of these advantages. You can only buy them by swapping them for another asset (commonly cash), and their values leap around depending on investors’ whims. Yeah, well, first of all, I choose to rent because I like the flexibility, so I fully do so in London, where rents have gone up a lot. So I fully see that side of things as well. But that’s, also kind of shows why I like property as an investment, because the rents do tend to rise in line with earnings and inflation. So you’ve got an income stream that sort of rises over time. In terms of actually getting into property, though, it’s not something to be taken lightly. This will have delivered significant capital gains for the owners of those properties. Depending on their individual tax status, and whether the property was their primary residence, these capital gains could even be exempt from capital gains tax.The capacity to generate future income is the most valuable asset everyone starts life with. As your working life goes on, this future earning power decreases as it’s “used up”. That’s OK: you don’t have to beat the market. You can do perfectly well by just performing in line with the market. And that’s spectacularly easy to do: just own a bit of everything. Cash gets a bad rap. Everyone points out that you barely earn any interest on it, and it loses earning power to inflation every year. You need an emergency fund. If you’re saving for something like a house, you don’t want to have that exposed to the markets where anything could happen over a short period of time. So I’m not saying don’t save, but I’m just saying be aware that it might feel now like your savings are doing something for you, but because inflation is higher as well, it’s kind of not. Markets are the aggregation of millions of individual human actions. Humans act as a herd, and whip each other into bouts of unjustified mania followed by woe-is-us pessimism. No fancy equations can overcome these tendencies.
Why do I emphasise the part about leaving you wanting more? Surely the best books on buying property for beginners would cover absolutely everything that can be learned in advance? You don’t need even the slightest knowledge of economics to read this book – just a desire to understand why the world of money is working against you, and what to do about it. Rob Dix started investing as a hobby using his spare cash, but soon became obsessed. Over the next 10 years, he would do everything he could to educate himself about the financial world and to pass on what he learnt. Unhelpfully, some of these strategies directly conflict with others. It's not possible for everyone to be correct. Somewhere between 90% and 100% of professional fund managers fail to beat the market consistently over time.
Purchasing real estate is a massive investment of money, time and nerve. Buying can be stressful, renting can be difficult, and selling at the best price requires know-how. Now, for our listeners who are renting, what have you got to say to them? Because they might say, well, one of the reasons I can’t invest is because rents in London are so high. However, ‘property investment’ is often used a term for buying buildings as a landlord. In other words, buying real estate then renting it out. In this case, selling to make money is usually a long term strategy. You think it would be nice and it would be for a little bit. But what would happen? Our prices would immediately have to increase. The price of everything would go up because otherwise . . . When we begin as investors, we tend to soak up lots of new information and we're hungry for more. But I have found that personally I began to 'close up' to new ideas, and became a creature of habit and superstition.
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