“The first thing you should do if you have 200 000 to invest is understand your reason for investing – Costas Souris Quality Group”
Investment Goal
To buy a car …
For my sons university fund …
For my retirement, so money can work not me …
I want a return in hard currency that consistently beats inflation …
Some basics
Timeline: How long do I want to invest for? 2-5 years : 5-10 years : 10 years and more. How long is most often determined by your investment goal, risk profile, age and retirement or semi-retirement aspirations.
100-year Life: People are living longer! This is because of better lifestyle choices and medical tech advances. Wonderful! The gift of longevity can also be a curse? Traditionally people retire at 60-65. Meaning retirement capital when money works not man, must provide sufficient passive income for 20-to-30 years.
We will outlive our parents by 10 years and our children will outlive us by 20 years!
Risk profile: Everyone wants to maximise return but, hate to lose! Typically, volatility increases with the risk/reward profile
Seems a silly question-How much are you prepared to lose? Isn’t the whole idea of investment is to make profit, not lose!
Let’s unpack risk profile
The conservative investor: This investor gives more importance to security and liquidity over profitability with a zero tolerance for risks and possible losses. The investment timeline of this profile is from 0 to 5 years.
The balanced investor: With a risk profile between aggressive and conservative These investors have a risk tolerance but seek a balance between security and desired returns. The timeline ranges from 2 to 10 years largely dependent on the investment goals
The aggressive investor: Priority is given to profitability regardless of the risk. These investors have a high tolerance for risk, are intelligent and strategic, and can afford to lose money, allowing them to be a little more tolerant of losses. An aggressive investor has a long-term investment horizon of longer than ten years.
Lump sum vs Monthly Investment
What are the benefits of cost averaging? Using the USD currency to illustrate the benefits. Dollar-cost averaging involves investing the same amount of money in an investment at regular intervals over a certain period of time, regardless of price. By using dollar-cost averaging, investors may lower their average cost per share/unit price and reduce the impact of volatility on their portfolios.
The stratgey of dollar-cost averaging reduces investment risk by smoothing out volatility. The pros of dollar-cost averaging include the reduction of the emotional component of investing and avoids the temptation of trying to time markets.
Monthly Savers: Will want almost instant access to their funds. Thus, bank account interest and money market funds are the typical solution.
Monthly Investors: Will invest for 5 years and longer and can use a selection of funds which are risk profiled as illustrated above. More risk can be taken when investing monthly as timelines are normally longer.
Once a lump sum is available e.g. 200 000, then a different strategy can be adopted based on all the already discussed basics. Understanding the basics let’s look examine options for investing your 200 000
Traditional investments: Equities, Bonds and Bank Deposits
Non-Traditional investments: Art, exotic cars, renewable energy, property, gold, commodities like rare earth metals as used in electric vehicle batteries and smart phones, the list of alternatives is long … but with traditional assets proving disappointing in an ever evolving investment universe, the future is “multiple investment solutions”.
For this article we will concentrate on Non-Traditional Investment also referred to as Alternative Investment in Real Estate/Property
Invest in Residential Property/Real Estate
Property is the foundation of most wealth, as after food, people need shelter to survive. However, fundamental is location. Investors can benefit from capital growth and rental income. Cons. Large capital is required, tends to be more long term, time is required to disinvest. Some investors do not like the responsibilities of managing tenants. Pros. Markets strengthen and weaken, but rentals can always be earned as a “roof over one’s head” is a necessity. Property management can be outsourced.
Invest in Commercial Medical Property
For most, the investment threshold of commercial property is too high. Another popular route is by being a shareholder in a medical building or portfolio of medical buildings. “The secret is in the tenant” if the patient requires medical treatment, by a Doctor or a Healthcare worker, then they have to pay; either cash and/or their Medical Insurance/Aid! If the Doctor, the tenant is paid, the Doctor will always have the cashflow to pay rent.
An excellent hands-off investment that provides above average USD passive income and capital profit.
Invest in Property by Private Lending
After the financial crises of 2008, central banks around the world severely limited traditional bank lending to small to medium size corporates. (Revenue per annum of $10m to $100m and the equivalent in other currencies/countries)
Non-Bank lenders filled the lending gap and today more than 70% of lending in small to medium size companies is by Non-Bank lenders; Institutions, Pension funds, Family offices, HNWs and Retail Investors.
An investment that earns steady fixed income with protected capital (Property assets are pledged as collateral) The return can be taken as income or deferred income/growth and is considered low risk with no volatility. The income can be earned in the three primary hard currencies; GBP : USD : EUR. And provides equity like returns without the risk.
In Summary
Investment can be a complicated business. Non-Traditional Alternative investing is delivering, and Property is a millennium old asset class that is logical, simple to understand and rewarding!
Quality Group SA
Future Proof Tomorrow
Costas Souris