Monday, February 20, 2012

How to invest in your 40’s

Is it too late to invest if you haven’t started before hitting the big four-zero?

Not by a long stretch. Here is a step-by-step guide for anyone over 40 looking to get started in property investment to have a nest egg before retirement.

In 2012, the concepts outlined in the guide generally follow from the assumption that the would-be property investor owns their own home, and therefore has some level of equity available to help them get started in investment.


Step 1: Get the right mindset

It is most likely that you need at least 10 years to get a good outcome, and 15 is fantastic, then after 40 it becomes all about how much time you have and what your goal is. Most people won’t be able to rely on their superannuation as the only source of income to retire on. 


Step 2: Establish your attitude to risk

Different investors have different appetites for risk and those risk profiles should be a major factor in deciding on an investment strategy. Your risk profile will determine:

*The loan-to-value ratio (LVR) you’re prepared to use to invest 
*The amount of debt you’re comfortable with and
*The type of property you’re prepared to buy.

Investors over 40 should be more inclined towards a lower-risk strategy, as they can’t really “start again” if they’re financially crippled. This means lower LVRs, lower borrowing and buying standard residential rather than riskier niche market properties.


Step 3: Set your goals

When do you want to retire? How much money do you think you’ll need to live off? These might be questions you’ve put off or ignored up until now, but before buying investment property it’s time to confront them. It’s all about goals –you need to determine how much money you’ll need in retirement and when retirement actually is. 

Many people will want to reduce working hours rather than ceasing working altogether which has a positive impact on your retirement funding. Investors need to think non-financially first. That is, what lifestyle they want, holidays, how much they want to work and so on. Then they can translate that into dollars.


Step 4: Select your property strategy

Once you know where you want to be in 10 or 15 years’ time, you need to map out a course to get you there. The first step is to get educated and the next step is to surround yourself with a good team - Get a good accountant, a good property solicitor, a good finance broker, as well as a good property agent and property manager. 

Investors may look to research and consider different approaches to the property market, such as capital growth, negative gearing, positive cash flow, renovation, subdivision and small development. Other steps to take include checking your borrowing capacity and establishing how much equity you have available to use. 

According to the experts, as far as choosing an investment strategy goes, it’s best to keep things simple. The combination of leverage and high-growth property can’t be beaten in terms of supercharging a retirement strategy.


Step 5: Develop a retirement strategy

It’s important for later starters in property to consider how you might make the transition to retirement and fund your living expenses before they even start investing. This is because the ultimate plan may have an impact on the structures used to acquire
and hold property.