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How to choose the right investment strategy for you?

Tuesday, September 06, 2016

When it comes to property, one size certainly doesn't fit all.  And it is precisely for this reason that property has such populist appeal.  Come at it from any angle by any means and you will have a good chance at building meaningful wealth with it.  But the overabundance of information flooding Google on different investment strategies makes it near impossible for newbies to identify with and commit to one particular strategy.  Learning the steps of each strategy is easy enough but finding the right strategy for you is quite another matter.  

The only person who can work out the best strategy for you is you. With enough introspection and self-awareness, you will be able to make a good start at investing with the best strategy for you.  So for this moment, let's put aside the countless books on your shelves and the blogs you have bookmarked and distill the matter down to three simple fundamentals, otherwise known as your why, your what, and your what-ifs?  


1. Your why

“Alice asked the Cheshire Cat, who was sitting in a tree, “What road do I take?”

The cat asked, “Where do you want to go?”

“I don’t know,” Alice answered.

“Then,” said the cat, “it really doesn’t matter, does it?”

Lewis Carroll, Alice's Adventures in Wonderland

What motivates you?  What are you investing for?  Do you want a passive income stream?  Retire in 10 years?  Do you have a passion for DIY and renovation?  Are you doing this for your children?  Your why dictates your how.  Why does you why matter?  Knowing that you are investing to retire in 10 years, for example, gives you a clearer view of where your portfolio should head towards.  If in 10 years' time you aim for an annual passive income of $50,000 (in rent) then reverse engineering from that figure to where are you at now and map out a plan to acquire properties that are strong on (potential) cash-flow.  If you are investing for generational wealth than perhaps capital gains properties will be more suitable as an overarching strategy.

Related tool: 10-year wealth projection calculator

2. Your what

What support do you have for your investment endeavours?  What are the resources that are (potentially) available to you?  Do you have enough savings for a deposit?  Are you in a high enough paying job that allows you to leverage more aggressively?  Do you have ready access to seasoned investors and successful entrepreneurs who act as mentors and business sounding boards?  Are you a keen negotiator?  Do you have the entrepreneurial spirit that allows you to see opportunities when others don't?  Are you related to a tradesperson who can help you improve properties efficiently and cheaply?  

While your what will not point definitively to a strategy, knowing the support you can tap into does help eliminate unsuitable strategies right off the bat so that you can concentrate on the ones that give you a greater chance of success.  For example, if your current savings is insignificant but you find yourself being able to identify good investment deals then why not consider a joint venture by inviting equity partners onto the deal?  

3. Your what-ifs 

Asking yourself questions that start with 'What if...' gives you a good idea of your overall risk profile.  There is no such thing as a risk-free investment.  Every strategy carries a degree of risk that is more suited to one investor than another.  If you have a low-risk tolerance than a more conservative buy-and-hold approach, whilst taking longer to generate a sizeable return, would afford you a less stressful lifestyle.  On the other hand, if you have a high appetite for taking calculated risk taker then it is certainly a good time to be in the Auckland property market as the Unitary Plan affords you plenty of development opportunities.  

What is your investment strategy?  What makes it the best strategy for you?

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