Why Property Over Salary Sacrifice

Most of you who have been following my monthly commentary and newsletters  over the years understand I have a bias towards investing in residential property, because I have been successful at building a multi-million dollar property portfolio over the past 16 years of investing, yet my compulsory superannuation has grown to only a few hundred thousand over the same period.

Superannuation is a good idea for the mass population, because it’s a forced savings scheme that currently has some tax incentives to encourage us to put more of our pretax earnings into this vehicle to help us amass a wealth base sufficient to accommodate our income needs in retirement, and therefore not rely on government handouts such as the pension and health care system. If you read any Superannuation peak body’s commentary, and they are very clear on their calls to increase the compulsory super contributions from 9% to as much as 15%, because we are forecast to be severely underfunded for future retirement needs.

Naturally, I expect this type of rhetoric coming from these bodies as they represent the financial planners and financial and investment houses who are chasing your money to invest.  These same planners and businesses earn their entire profits and their income from YOUR Money, so the more that comes in, the more they hope to make you in returns and also the more they profit themselves.

Back to Super being a good idea for the masses—I stand by this belief as many people fail to manage and control their money adequately and have nothing when it comes to their later years, so they are forced to work longer, because they cannot afford to retire or they retire on a measly pension, as the government cannot afford to pay them more.

Now to the wise few, who understand what’s going on and who are interested in providing more wealth for themselves and their families in the future.  They have worked out a couple of factors that have the ability to change the level of wealth one can create through alternative options like property.

They understand a very critical element about super and property—super funds invest the majority of their clients funds in shares, and shares can be very volatile which can wipe out huge wealth levels very quickly, as we have seen with the recent events of the GFC, whereby the marketplace lost over 50% of its value in a year.  Australian Property on the other hand is far less volatile and has rarely, if ever lost 20% of its value at any point it time.

In understanding this, smart investors educate themselves in finding the least volatile properties they can find, usually in blue ribbon locations, and then magnify their investment returns through borrowing to acquire a bigger asset value.  This is often referred to as leverage.  Bearing in mind you need to ensure you can manage your cash flow, as this is where the novice or uneducated investor fails.  The smart investors have advisors to help them measure their cash flow needs for today, tomorrow and into the future to ensure they can hold and build on this wealth base.

So those people salary sacrificing get a return on the money they put in, yet property investors use the same amount, but through leveraging get to invest in something worth a lot more that compounds into far greater amounts of wealth over time, far surpassing any returns gained in super and any short term tax benefits.  Do the math yourselves, smart investors have and are enjoying superior levels of wealth.

If you want to learn more about greater wealth through property give Empower Wealth a call.