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Property v Equity

As part of the Queen’s Jubilee celebrations, the Independent printed some statistics looking at the performance of various types of investment in the period of the Queen’s reign.

Two assets in particular caught my eye, the change in value of equity (stock markets), and the change in value of residential property.

It is a debate that I have had with many clients over the years. In the years (roughly) 1995-2009, prices soared upwards. Homeowners made huge amounts of money, simply by living in a house. It gave rise to a feeling that it would always be this way.

In many ways, the credit crunch, the current recession and austerity measures we face, are a direct result of this belief. High bankers bonuses for excessive lending, massive personal debt, overly complicated financial instruments that collapsed, much of this can be blamed on over-valued house prices.

So what of the figures? Well, according to the Independent, house prices increased 8, 509% over the last 60 years. In contrast, the F&C Investment Trust increased by 35, 984% in that same period.

Now, I must stress, this is a simple comparison. For example, it does not take into account potential rental income, whereas the F&C Investment Trust does receive dividend income. It also does not take into account the effect of gearing (borrowing to purchase property which can enhance returns).

However, it also does not take into account having to find tenants, or spending a Sunday at your investment property trying to fix the toilet.

Clearly, property can be a good investment for some people. We use the phrase ‘past performance is not necessarily a guide to the future’ about equities – I believe that it is at least as equally to house prices.

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