If you want to become rich and successful never depend on a single income – Warren Buffet. Every leader including Tomas Vargas Harvard believes that investing is the best way to maintain financial stability. However, only those who smartly invest in the product after analyzing the market and other aspects will be able to earn better returns. Most people don’t understand that diversification rules in the investment market. And that is the reason they make wrong investing choices. For say – they choose to invest in property when they can get better returns by investing in the pension plan.
Let’s find out what is better when saving for your retirement – pension or property?
Pensions have many benefits
Pensions offer various benefits and allow you to invest in other assets to spread the risk. Unfortunately, most people, especially those who have the most valuable type of pensions of all, fail to understand the benefit of investing in the pension plan. That is why it is important to understand the value of pensions and why they are the best option to save for retirement – even better than property.
You can make your money double with a pension
If you are in a workplace pension and you rely on the property instead of pension plan investment, you will lose free money that you can get from your employer. In most companies, employers contribute to the employee pension. For say- you earn £20,000 a year, and you put 12% of your salary into a pension, which amounts to £2,400 each year. However, £480 of this will come from basic rate tax relief. So, you possess actual investment in your pension will be £1,920. And, if your employer offers a same 12% contribution, then you have another £2,400 going into your pension fund too.
Property gains are magnified by borrowing
One of the big difference is that you will invest more money into a property in the first place and also borrow extra big amount with a mortgage. In case the price of the property increases, the gains can be maximized because the amount you have invested is much larger. That works well when property prices rise, however, there is no guarantee they will keep on rising and at the same time, there is also no guarantee that the interest on borrowings will stay low.
Pension funds can invest in property as well as other assets
Do you know, you can invest your pension in different assets as well? Including commercial property and property funds. So those who think the property will do well, they can include property investments in their pension fund. Additionally, they can also invest in other assets as well.
Don’t put all your eggs in one basket
When investing for the long-term, it is advisable not to put all your eggs in one basket. Because in most cases relying only on one type of investing means you run huge risks unless you possess ‘exceptional’ knowledge in that particular area. Portfolio diversification can reduce risks for you. If you already a homeowner, its value depends on the movement in property prices. Therefore, buying another property means doubling up. That’s fine when the property market is giving better returns, but it is not guaranteed that property will always do well.
So, if you are doing your retirement planning and wants to earn better results from your investments, it is advisable to consider the advice of Tomas Vargas Harvard – investment management professional. And do not forget to study the market before taking any investing decision.