I bought my first house in the 1980s. Back then, house prices tended to go up or down regularly. Each cycle often lasted several years.
Real estate versus FTSE stocks
However, there was another trend that affected prices. In the long run, house prices tended to rise regardless of the undulations along the way. And while I am describing the behavior of the property market, it strikes me that FTSE stocks have generally behaved similarly over this period.
When I first ventured into real estate ownership, I had a lot of advice from older relatives and friends. They believed that real estate would increase in value in the long run. Many encouraged me to borrow as much as possible on a mortgage and extend the repayment time for a long time. Why? Because inflation would likely make repayments easier as my future income increases over time.
That advice was spot on. The properties I owned rose in value before price inflation hit. And the mortgage payments became a much smaller percentage of my income. I even managed to buy an investment property in one of the slumps in the 1990s and sell it at a much higher price when the market rose again a few years later in the noughties.
However, the real estate market has changed compared to the conditions of 30 or 40 years ago. For example, those up and down cycles are no longer so obvious to me. Nowadays, it feels like the value of a property is generally only going up. And the lack of any major slumps in the stock market has deterred me from continuing to invest in real estate. Even though I still own my house.
The ultra-low interest rate environment and the wide availability of mortgage finance are helping to keep property prices booming. But I think current conditions make buying property a difficult decision to make.
Diversification between asset classes
Still, I think some of the old advice is probably still good. Real estate is likely to continue to appreciate in value over the long term. Inflation is likely to continue to depreciate the value of debt. And maybe it is a good idea for me to diversify between asset classes, such as B. Real estate, stocks on the stock exchange and some cash.
Since I own a home in addition to cash and stock accounts, I am diversified between asset classes. I am now focused on adding value to my stock portfolios.
I’ve built a foundation of investments such as managed funds, investment trusts, and various low-cost tracker funds.
In addition to these regular investments, I also invest in the stocks of individual companies. Investing in individual stocks, however, requires more research, portfolio management, and monitoring time.
However, I enjoy the process of investing and try to get higher returns than with my diversified collective funds. But no result is guaranteed. And everyone has their own unique set of circumstances that help them develop their own investment strategy.
The article Booming Real Estate or FTSE Stocks? This is how I invest now first appeared on The Motley Fool Germany.
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This article was written in English by Kevin Godbold and on 06/05/2021 on Fool.co.uk released. It has been translated so that our German readers can take part in the discussion.
The Motley Fool UK has no position in any of the stocks mentioned.
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