Investing in equities is the key to making money

Bricks and mortar: is there a better way?

When I started in financial planning , the most common objection I faced when recommending an investment was: “I'm buying bricks and mortar, that's my pension.”

In recent months, I have had clients come to me because they no longer want to be a landlord the legislation and complexities have become too much.

There are few logical reasons why I believe equities make better investments than property.

But we don't buy it with logic, we buy it with emotions, justifying our decisions with logic that will back up the choice we made.

One great example, I was speaking with a client recently and he was very proud (re: boasting!) Of a property he purchased in 2000 for £80,250 that has been valued at £220,000 today - Again of almost £140,000. If you ignore all the associated costs, that's a pretty nice return.

But how does that 4.3% annualised return compare with the stock market?

If, in 2000, he avoided companies like Tesla and right move and invested his money in a boring, straightforward world equity fund, he would now be sitting on around £388,753 - over £168,000 more.

When you buy on the world stock market, you don't think of it as buying a fund. Think of it as becoming a part owner in some of the greatest companies from around the world, such as apple, Microsoft, Exxon, Johnson and Johnson and Visa. Which would you prefer: a rental property in your local town, or ownership of some of the world's greatest companies?

I'd rather own the company than the building they work from.

You might be thinking, “Wait, you've forgotten about the rental income he receives.” And, true, this is generally around 3.5% - which is what my clients property achieves, in a lower risk family unit.

Because over a 20 year, how much do you think he needed to spend on the house to keep it in good condition? The odd plumbing fix, a new bathroom and kitchen - and let's hope you didn't need a new roof, or major structural work.

My grandmother always said to me: “it's not what you make that's important, is what you keep.”

An £80,000 investment can be managed hassle free and tax free within ISAs and allowances but when my client sells his home, he'll pay a “success tax” of 28% on the profit he's made, handing over tens of thousands of pounds to HMRC - and that will really eat into his return.

If you can afford to buy your own home, you should. It's a place for you to build memories.

But as an investment, I'll keep backing Global PLC and allow the best brains and talent in the world to grow my wealth tax efficiently.