Why Fincalena Portfolio Should Be Part Of Your Investment Portfolio

"A good investment is buying a property at a price that underestimates its real value or the return it will generate in the future." Even if you are looking for a holiday or retirement home, you should treat this potential acquisition as an investment and an integral part of your overall portfolio. Every investment portfolio should be intelligently diversified in order to present a good balance between risk and return. We exclude bonds or putting money into a savings account as viable options for investment because of their low actual return. In our opinion the ideal investment portfolio is a mix of property and shares.

Where shares historically give the highest returns, they also carry the biggest risk. Our own investment portfolio contains several property investments (on the Costa del Sol) financed with an optimum mix of equity and mortgages and funds in shares. The shares have proved to be more time-consuming to manage due to their associated risk and reward. Over the last 6 years we have established that shares have only recently started to generate a superior return over property. Markets are always moving so there is every possibility the pendulum could swing once again to the side of property, getting the timing right is somewhat harder though.

Here are some future scenarios where property could end up becoming a better investment:

• A rise in the rate of inflation: while official data suggests inflation is under control, people experience that differently in their day-to-day lives (restaurant, gasoline, etc.). On the stock market we have also seen a dramatic rise in the prices of gold and silver, which are textbook examples of rising inflation concerns. In an environment of rising inflation people prefer to hold on to tangible assets such as property.
• An intense recession: if the economic recovery in Germany and the rest of Europe is not as robust as suggested (unemployment benefits and taxes still too high, nave confrontation to the challenges of globalization, demographic worries, etc.) this could trigger a recession and create the need to lower interest rates again to support the economy, which in turn supports the real estate market.
• Political instability resulting from the tensions in the Middle-East: we should consider the possibility of a serious escalation in the amount, and the intensity of confrontations due to religious tensions and terrorist threats. This could have a negative impact on the stock market (i.e. the stock market after 9/11).

In a diversified Portfolio you can combine having shares and property and enjoy the benefits of both investments. The property part of our investment portfolio is easy to manage, is stable and predictable and gives us a good return. We expect the rental return of the property to be an increasing guaranteed monthly income. Shares, on the other hand, are an ideal diversification which can generate impressive returns, but require more skill and a higher level of risk and uncertainty.