One of the most crucial aspects of intelligent investing is balancing the risk an investment entails with the returns it is expected to yield.
Conventional knowledge dictates that only high risk investments will produce high returns, while low risk investments will yield only low returns.
He says this leaves investors facing a significant dilemma, as both high risk and low returns are unacceptable. Most investors cannot tolerate any risk of losing their investments and, with a high risk investment, this is a very real possibility.
On the other hand, low returns also pose a significant risk to investors: if the investment returns do not at least keep up with inflation, their capital will be steadily eroded.
The solution would be to select a low risk investment that produces high returns.
“One investment that has proven to provide investors with both low risk and high returns is buy-to-let property investment,.” “Buy-to-let property investment is low risk, as the risks can be managed, if not eliminated, through simple, cost-effective risk management strategies. It is also an investment that produces high returns, because it yields dual returns: an ongoing, inflation-linked income, as well as long-term capital growth.”
Of course, all investments entail risk. However, with a buy-to-let property investment, the investor is not at the mercy of volatile markets, fickle investor sentiment or the performance of asset managers.
Instead the risks, such as buying the wrong property, vacancy and late or non-payment of rentals, can be proactively managed, if not eliminated, through tried-and-tested strategies.
To mention just two examples, using advanced software ensures the right property is selected in an area with high current and future rental demand, while appointing a professional rental management company to manage the tenant and the property and/or insuring the rental income can eliminate the risk of a tenant defaulting on rental payments cost-effectively.
While a low risk investment alternative, buy-to-let property produces impressive returns. The ongoing monthly rental income yields a steady, predictable return, which also keeps pace with inflation year after year as the rental increases annually by the rate of inflation or the amount stipulated in the lease.
A second source of ongoing returns from the same buy-to-let property investment is the steady and compounding capital growth the property produces year after year, which over the long term also keeps pace with inflation.
The combined and compounding effect of these two sources of returns produce the higher returns investors need to reach their financial goals.
“Given the significant risk presented by both traditional high risk and ‘low return’ investment vehicles, particularly in the current volatile market, buy-to-let property as an investment alternative is certainly worth investigating.”
“Property investment is a truly lower risk investment alternative which empowers ordinary South Africans to take control of their own investments with an investment vehicle that can produce not just high, but dual returns, without the high risk that is traditionally associated with such returns.”