One of the depressing things about the election campaign was the stereotypes produced of various generations.
Boomers, of course, are cast as the devil incarnate and it is perhaps not hard to see why when you look at the array of goodies specifically laid out to buy their votes.
However, the most enduring and nasty stereotype for my money is the millennial or younger generation.
Homebuyer versus avocado toast
Overwhelmingly they were seen as being in one of two camps – hard done by savers who are desperately saving for a house, only to see their dream cruelly snatched away by rising prices.
Or the other type – miscreant ne’er do wells, happy to splurge today on avocado toast with barely a care for tomorrow.
These sorts of stereotypes are very unhelpful, not just because they are wildly inaccurate but also because they discourage the search for alternatives.
My own observation is that many younger investors may have a wide array of reasons why they are uninterested in buying a house or apartment – some financial but many others relating to employment, lifestyle and flexibility as well.
Other paths to prosperity
It is true that buying a property is one path to a more prosperous future but it is far from the only one. In some cases, it would actually be foolhardy to lock in to a long-term mortgage that will cause severe budgetary pressure and mortgage stress and, at the same time, restrict much desired mobility and flexibility such as taking up overseas or interstate employment opportunities.
One of the biggest benefits of buying a property is not simply the potential capital appreciation but the enforced saving that comes with it and the bigger exposure to an asset that a large loan provides.
Mortgage payments simply have to be made to keep the roof over your head and the figures show that Australians will do almost anything to keep up those payments.
Other forms of enforced saving
However, there are many alternative ways to “enforce” your own savings plan, some of which allow much more flexibility for when times get tough.
One example might be to commit to a certain level of savings from each pay period and to put that in a separate investment account.
For those who still love property, there are many listed property trusts that offer broad exposure across various office, retail and industrial properties with the added bonus that someone else collects the rent and does all of the paperwork.
To replicate the housing loan scenario, a modest margin loan could be added to the graduated investment in something like Vanguard Australian Property Securities Index ETF (ASX: VAP) as an example.
Lower gearing to avoid margin calls
For such an investment plan it is important to avoid the possibility of a margin call, which can happen when using a large loan when the value of the exchange traded fund (ETF) might drop suddenly due to share market movements.
More modest loans in the range of 30% to 50% should reduce the chances of that happening, particularly when a regular savings plan is adding cash to partly finance new periodic purchases – say every three months.
While direct real estate investment has many good features, this more modest strategy does as well – the main ones being the potential to reduce tax by paying the margin loan annually up front and claiming that amount on your tax return, producing income, some of which is partially tax paid (fully or partly franked) and the simplicity of not having to pay and worry about payments like repairs, rates, stamp duty and insurance.
Expanding into other asset classes
Of course, real estate is just one of many asset classes available on the share market and this same strategy can be broadened to apply to Australian shares – either directly or through listed investment companies or ETF’s – international shares, bonds and even more exotic investments such as cryptocurrency or private equity if desired.
Compared to a big, lumpy and hard-to-save-for property purchase, the advantage of such an approach is that it remains very flexible and much more diversified.
While it can be designed as a long-term strategy, it can also be wound up or scaled down quickly if the need arises or even run from overseas as well.
Finding the right investment strategy
Many of these features will be helpful for younger investors who may not fit the stereotype of a potential homebuyer who is prepared to become a long-term slave to a potentially crippling mortgage or even to a single location.
An automated savings system can also be scaled up or down as circumstances dictate, although like buying a house, it is rewarding to build up an asset over time and investors will be reluctant to reduce the size of their investment unless the need is strong enough.
The important thing for people of all ages is to invest in their future as much as they can in some way – be that financial, educational or through grabbing work experiences.
As Warren Buffett put it, investing in yourself is a good strategy no matter what the economic climate so don’t feel confined by stereotypes and labels and make sure to pick the right strategy that suits your investment stage and temperament.