RISK VERSUS RETURN

RISK VERSUS RETURN

The current Real Estate market (as well as the share market) will prove to be another shining example of why the rich keep getting richer and the poor keep getting poorer.

Throughout history it has been a truism that the riskier the venture, the higher the return.

Lessons can be drawn from history from the Spanish Conquistadors chasing gold and silver in South America to indentured workers promised land in America.

That is why the returns from depositing cash in the bank will always be less than other forms of investing. The other enemy of cash deposits is inflation (Do you understand the rule of 72?).

By far the majority of people fail to understand that doing what appears to be the safe thing and turning assets into cash when prices are down, increases greatly the risk that they will miss out when those assets rise again in value. (Remember cash ONLY depreciates through inflation, it can never be worth more than the face value deposited).

Again, historically, people have demonstrated time and again that they suffer from a herd mentality. The reason is fear.

I encourage you to separate yourself from the herd.

The first thing you need to understand is the difference between investing and speculating.

Just ask yourself if you believe that BHP Billiton or one of the big four Australian banks actually lost as much as 4% or more of their true value in a single day during the recent herd panic on the stock exchange.

Another reason to acquire real estate is that it doesn’t lose 4% of it’s value in a single day and has always increased in value. The reason is that it is a finite resource. In other words, “Get into Real Estate son, they’re not making any more of it”.

Want to discuss these ideas further? Call Ross on 959 22 222.

Ross Cutten

Director

Noble Real Estate