Owners of an investment property have been popularly characterised as retirees, the filthy rich or the overseas mogul. However, Australian property market trends have revealed a new player in the acquisition of investment realty – the techno-savvy, multi-taskers of Gen Y.

What we shall explore are some of the reasons why young people are choosing to invest in property and some of the market trends they are establishing. Also, to help those interested in investing in real estate, five very important investment tips shall be discussed.

Why Young Australians Choose to Invest in Property

In the past, young people were seen to be more concerned with saving money for overseas trips, buying a new car and moving out of home into a shared rental facility. Young people today, however, are choosing to stay at home longer (where they rarely have to pay rent) and pour a large portion of their wages into an investment property.

Young people (in remaining at home) are seeing this arrangement as a viable way to simultaneously save money and reap the rewards of rental income and capital growth on their investment property. Already parents around the country are crying to bring back that feeling of an empty nest!

According to many property analysts, the high rental returns and the affordability of houses in certain market hot spots has meant that real estate has become a profitable way to financially grow one’s wealth. Furthermore, many other forms of investment, like shares and bank term deposits, have performed worse since the Global Financial Crisis. The young, therefore, are cashing in on this current property market climate.

Worrying Trends for Young Investors

There are some worrying trends emerging in the property market, concerning young investors and the way they are managing their investment properties. Every year 25% of investors sell their investment properties within a year of buying it and this figure mainly consists of those in the Gen Y age bracket. It seems young people are selling their investment properties prematurely and missing out on a lot of potential capital growth and profits.

The reasons for young people not staying in the property market long enough can be anything from overstretching themselves financially to just sheer inexperience. This is why it’s important for young investors to get in touch with the right professionals who can provide them with legitimate property investment advice.

5 Tips for Young Investors

To help educate young investors, here are five important tips when thinking of getting involved in an investment property:

1. Seek expert advice from a range of professionals on property investment. Also, it never hurts to do your own research as this may help ensure that you are getting the right advice and not falling for a sales spin.

2. Develop an investment strategy or plan before you invest in a property. This will make managing your property easier and will give you a greater understanding of what you can afford (which leads to the next point).

3. Make sure you can afford it. Don’t overstretch yourself too much financially as you may need to initially support your investment property with your own cash.

4. Make sure your job is secure. As with the previous point, you need to have a steady cash flow to ensure you can support any short term losses on your investment property.

5. Try to stay in for the long haul. If you sell too early, you could be undercutting your potential profits.

Commercial property investment is complex by definition, and the new market environment is making it a lot more complex. The New Economy is phasing out traditional commercial property types, and replacing it with the 21^st century version, which is a very different type of property investment issue. It’s an indicator of changing times in the property market that the big new types of business software are commercial real estate software, property valuation software and even real estate developer software.

The commercial property market, an overview

The nature of the commercial property market is changing, and not for the better for some investors. Commercial properties as investment are as far as risk goes definitely the highest risk investments in this environment. If you’ve seen any of the rundown retail centers and old shopping strips around the world, these are the primary symptoms of change. The old shopping methods are changing with online buying, which is basically more about warehousing sales than retail.

Simultaneously with this move, the New Economy businesses, which are much smaller than their Old Economy predecessors, the big corporations, are looking for commercial space. The problem is that they’re looking for these premises on their terms, not necessarily the market’s. These businesses are cost misers, and they can afford to be. Their business model reduces costs to bare minimums. They don’t own shops, they own warehouse space. They market their goods and services all over the world.

It’s a standard operational principle for New Economy businesses to reduce overheads, and that includes commercial accommodation for themselves. They don’t need big offices, penthouse suites, or the rest of the paraphernalia of the old corporate world. Quite the opposite, they need communications facilities more than they need furniture.

The good news for commercial property owners in the New Economy

The good news for commercial property owners is that these businesses are hyper-efficient and very profitable thanks to their ultra-cost-conscious ways. As tenants, if you want someone who will be able to pay their rent, these are the people you want in your building.

Another good bit of news is that since they require less space, occupancy rates can increase safely, and without the sort of reliance on one big occupant for revenue. New Economy businesses typically don’t even need IT sections, administration or other major space occupancy. They routinely outsource their IT and admin. So you can have a larger number of occupants, using less space, and paying good rates.

There’s one caveat here, but it’s an important one- New Economy business are mobile as well as cost-sensitive, and to keep them on the premises, the cost of occupancy has to be in their bandwidth.

The days of the big organizations in big buildings may have gone, but the New Economy businesses are starting to do business on the same scale. An office building full of New Economy businesses may seem more like a clinic than a place of business, but it generates a lot more business than the old offices ever did. Watch this market, because it will never get dull.

In the middle of 2010, the Cooper Report recommended that collectibles, such as art, cars and horses, to mention a few, should be excluded from any involved involvement with Self Managed Super Funds. The current government did not follow these recommendations, but at the same time there are stringent requirements on what you can purchase as a part of your SMSF. There are other issue that are way more important than buying things you like with your SMSF.

• Small Proportion. According to the ATO, there is only about one quarter of a percent of the total of SMSFs investing in Art and other collectables (such as exotic cars that just have to be insured with high end car insurance). While this is still a very small amount, we can expect the rules and regulations on such high-ticket items that are often really for personal use, to become more stringent as time goes by.
• Changes In Government. Changes in governments, and changes in legislation, can greatly affect the rules we all live by. For example, this time the Government did not adopt the changes recommended in the Cooper Review. We cannot always expect this to be the case. The relatively recent introduction of legislation to allow more freedom of choice for superannuation plans is expected to lead to a huge increase in those who are involved in SMSFs.
• Sole Purpose Test. The defining factor for any investment anyone is making through a SMSF in Australia, is essentially defined as legitimate or not, through the Sole Purpose Test. This means any investment must be an investment and make earnings for retirement. It is only those who have a lot of money to invest, and can set up elaborate accounting and investment strategies to legitimize their involvement with collectibles. Cars, car insurance, horses and art come under very close scrutiny. It can be very difficult to make these items appear as sound investments for the future. Only if those investments are in the form of an organized structure, such as a horse racing syndicate, or a car hire business, could they begin to be considered as legitimate investments. Again, it is only those who have the abundance of wealth, and all the resources that go along with this, who can create such a framework to satisfy the legal requirements.
• Skilled Consultants. The landscape of the SMSF world is constantly changing. It is only prudent to have professional consultants to help you manage your own SMSF. Many Australians are putting themselves at risk because they do not understand the complexities of managing such a fund to real benefit. For anyone considering a Self Managed Super Fund, a large amount of education, research and study are required. On top of these issues, the threat of fraud and theft is becoming increasingly high. Major Asian criminal networks see the SMSFs in Australia as a highly prized target. The theft of these funds with sophisticated identity fraud, and highly skilled techniques, is a real risk for anyone investing in a SMSF on their own. Unlike other superannuation schemes, automatic protection is not available. If you have the money to invest, it is more important you focus your attention on getting educated, getting the right consultants, and getting the best investments and investment management, well before you consider options such as collectibles and the like.

Managed funds as they’re usually called are special forms of investment fund, managed by investment professionals. They’re true funds, with investors providing a pool of capital to invest. Managed funds are usually related to equities markets like the stock market, but some may relate to things like property investments or other types of capital investment.

Who needs a managed fund?

The reasons for investing in a managed fund can vary considerably. The people most likely to benefit from managed funds are:

• Younger people, setting up a wealth creation portfolio.

• Business people making strategic investments to develop their capital.

• Busy people needing someone else to manage their investments.

• Retirees needing a retirement income and more capital as they get older.

The common factor here is efficiency. Managed funds can provide good returns on investment without direct involvement in the process of managing assets. Stock market investment, for example, can be a full time job. Most people don’t have that sort of time, or the expertise required to make significant profits. Managed funds are a simple way to lock in wealth creation methods.

Common questions about managed funds

• Do managed funds charge fees?

Yes. Managed funds make money by making money for their clients. They charge fees for their services based on the value of the investments. Their fees are usually a percentage of the value of the investment.

• Do managed funds ever fail?

Very rarely. A very small number of managed funds around the world have failed in recent years, despite the stock market meltdown of 2008 and the recession. Many of the funds actually took advantage of the crash to invest in stocks that later recovered.

• Do managed funds guarantee returns?

No. It’s actually illegal to even suggest that a record of past returns indicates future performance. There are risks in any form of investment, and market values can change drastically over time, depending on economic conditions. It would be quite unrealistic to assume a future return in a recession could be the same as a return in a boom market, for example.

• How do managed funds make money?

In several ways. Managed funds make profits both through managing other people’s money and through their own investments. They therefore have lots of incentives for their funds to perform and make profits. Most of the managed funds, in fact, do outperform the markets, and definitely outperform individual investors, who usually don’t have the capital to make large amounts of money off their own holdings.

• Are managed funds better than superannuation?

Managed investments and superannuation are very different things, and need to be evaluated differently. There are different tax benefits in superannuation and other factors involved in the comparison. The goals of superannuation and managed funds are also different. Superannuation is a statutory form of retirement saving, managed funds are not. Super may be suitable for saving, but not necessarily for wealth creation, which is the main focus of managed funds.

If you’re looking to add some new possibilities to your financial management, managed funds should be investigated. Do your research, talk to a fund manager, and you’ll see plenty of options.

Most people do know something about investment, but let’s be honest, that’s a long way short of being an expert. Even the best professional private investors often find themselves in a loss-making situation. Private fund managers base their businesses on meeting client needs, and providing high-quality financial advice. These managed funds cover everything from basic investment to investing in futures, commodities and financial products like derivatives and bonds.

Private fund management basics

Private fund management involves paying a financial professional to manage your investments. Fund managers typically operate a wide spread of investment portfolios, often quite diverse, and their businesses are based on making a strong positive net return on managing those funds.

Private funds can include a surprisingly large range of investment options. This range provides considerable depth and scope for private investors, and is particularly useful for investors seeking both broad-based and specific types of investment.

Private fund management is also a good way for ensuring expert monitoring of investments. Some investment options may be complex, and are not really for private investors who don’t have a strong knowledge base in those areas. Fund managers operate for the benefit of their clients, and can be relied upon to act in the interests of the clients at all times.

Managed funds are operated on the basis of strict professional ethics and in most countries effective regulation. There’s no “Wild West” element in this type of investment or delusional promises of unrealistic returns. Professional fund managers deliver solid returns, not sales pitches.

The advantages of private fund management

Having a private fund manager is far more cost-efficient than many investors seem to realize. Private investment can be hard, time-consuming, work, and it can be extremely difficult to generate good returns as an individual investor. The amount of time and effort put into trying to make profits from individual investments like share trading can be exorbitant and counter-productive.

In effect, you get a professional fund manager to manage your investments for the same reason you get a professional pilot to fly your plane rather than trying to do it yourself- It’s safer, and your chances of reaching your destination are dramatically improved.

Having an expert on hand when you need one is also a good way of dealing with both future planning and current financial situations. There’s also a lot to be said for having professional advice when exploring wealth creation options and making informed decisions.

Professional private fund managers also provide a level of personalized service which is usually not available at all in the retail investing market. That’s particularly important for private investors, because everybody’s financial situation involves a certain amount of “case management”. It’s always useful to have someone available who can provide a clear, objective opinion when managing personal finances.

Your private fund manager also acts as a built-in safeguard against unwise investment decisions. Fund managers can access information regarding investments very easily, and they can spot any flaws almost instantly. They can also check the performance, valuations and other critical factors related to investments.

Just get a private fund manager. You’ll never regret it.

Peter Schiff perhaps said it best when he stated that “gold and silver are the best insurance policies in today’s turbulent markets. They are the classic hedge against inflation and can provide a cushion of savings even in the most extreme economic environments.” In recent years, gold and silver have hit all time record values, in turn having people everywhere searching for ways that they can build protection and insurance for the future in times of need.

Unlike bonds and stocks that tend to suffer in times when the economy is in a downturn, precious metals do not suffer the same inflation. Over the past ten years, gold has seen a 350% increase in its worth and has become more sought after than ever as an investment opportunity. In addition to being highly durable and able to withstand extreme amounts of wear and tear, it can also be divided easily without disturbing its natural components. For its relatively small size, gold and silver coins hold a high amount of value.

You may already be an owner to a wealthy amount of gold and silver jewelry, coins and other various items. However, what you may not know is that the value of gold has risen significantly. Investors are readily paying as much as $1300 for an ounce of gold, and that price is continuing to rise on a regular basis, making now a better time than ever before to consider investing in precious metals.

There are several different ways in which you can go about investing in precious metals. Physical gold is usually bought directly from places like europacific gold in the form of coins, gold bars and bullion. This form of direct investment ensures that while you obtain the gold that the value of it will not diminish. However, there is the hassle of preserving and storing the gold by your own means and resources. A more indirect way of investing in gold is by obtaining gold certificates. The certificate itself holds the value of your gold and allows you to trade it without having to have direct possession of your precious metals. Gold mining shares and gold mutual funds are other alternative ways to obtain an investment in precious metals by having shares of mining companies.

An added benefit to investing in gold and precious metals is that they are accepted currency across the globe. While this is not beneficial to those who obtain stocks or shares in mining companies or hold gold certificates, it does provide a versatile gateway for those who have direct possession of precious metals.

Choosing to invest in precious metals and gold can be a great investment opportunity for most anyone and can go a long way in ensuring a protected future. The amount of risk that is involved with investing in gold is very minimal and the metals are very marketable, meaning that if a situation arises in which you need to let go of your precious metals in the future, the demand is high enough to ensure that you will likely not run into issues.

Exchange Traded Funds, bigger than super and mutuals?

Exchange Traded Funds (ETFs) are becoming a real threat to the big super and mutual funds. They’re easy to manage yourself, useful for SMSF operators, and their returns are pretty good, given the state of the global markets and the soggy, slow moving cash and bond rates. The most important thing about the ETFs is that they provide direct access to the highly mobile indices that the funds use themselves.

ETFs and indices- Portfolio structures

Another thing investors need to consider when setting up working portfolios which indices to target. Getting the structure right, and creating exposure to indices used to be very hard work indeed, even for professional fund managers. With ETFs, it’s very easy. The ETFs are designed to work on specific indices.

One of the reasons ETFs are so investor- friendly is that they take the arduous decision making out of the stock selections. Buying in to an ETF means buying in to the pick of that index. Indices are much easier to target than trying to buy a range of stocks, all with different returns on investment and those adorable deferred dividends, etc which drive most investors up the wall at some point.

Getting started with ETFs.

That means you can set up your portfolio to cover a range of indices. If you’re new to the ETF market, it’s a good idea to keep things simple. The ETF market includes some quite complex products. You need to learn this market step by step, so your judgment and investment instincts are kept well informed at all times. A typical starter ETF portfolio will include things like blue chips, always useful for getting returns from this often pricey, as well as jumpy, index.

Note: The blue chips are also a good way of seeing how ETF performance, market performance and stock performance interact. These are valuable lessons in themselves, and you’ll also be able to put dollar figures on your choices and your investment options.

Unlike mutuals and super, there’s also direct access to real time market values for ETFs. The simple fact of being able to sell ETFs in the market is a working valuation of your holdings when you need one. That’s particularly useful when you need verifiable asset values in a hurry.

Riding the indices

Using indices as investment vehicles compared to individual stocks is effectively providing yourself with multiple income streams, rather than the snail- like effect of investing in a stock and hoping it goes up, not down. The critical risk factor of putting all your eggs in one shaky corporate basket during earthquake season on the markets is also avoided.

If you’re doing DIY superannuation, your natural need is for something a bit more trustworthy than a CEO’s glowing review of his own performance as the basis for investment. ETFs are a type of natural insurance against the very debatable merits of reliance on “market sentiment”, “pundits” and the rest of the equity sales pitch culture. Indices aren’t sentimental. They can be analyzed, but not particularly influenced by rhetoric and other non- cashable commodities.

The ETF ride on the indices is a lot less bumpy than the ride on the markets themselves.

People are generally hesitant when they invest for the first time. The top reason for this is because they lack the know-how and the proper information on in making the investment. However, most investors will say that being hesitant only happens in the beginning and that you’ll eventually get the hang of it. When money is involved, we really tend to be skeptic. The first step is to try to get investments that are beginner-friendly. Most online investing companies are used to first time investors and have tutorials and FAQ’s to help you out. From there, you will be able to grasp the basics of investing and knowledge will eventually start flowing.

Interest-Bearing Savings Accounts

These are types of investments that most people have already. These accounts provide for a percentage of return which amount is dependent on the money in that account and depending on banking rules and policies.

Certificates of Deposit (CD’s)

Almost everyone already has a bank account, so the next logical step would be to invest in certificates of deposit or shortly termed CD. The interest in this kind of investment product is higher than the regular savings account and can be availed of in any bank. One of the benefits of this type of investment is that you control its duration and then interest is collected at the time the CD reaches maturity.

Money Market

These are funds that work similarly to savings accounts in such a way that they are also short term. These investment products are advisable to people who do not want their money to be tied up. Contrary to a certificate of deposit, however, is that money markets have higher payouts.

As soon as you have learned the basics on mutual funding, try talking to a broker like Tradeking who can explain more in detail as well as suggest next and better investment choices. However, always stick to low risk products especially if this will be your first time investing.

Many people in this economy are losing their jobs and when it happens it can be difficult emotionally but there are many financial considerations you need to think about if this happens to you. One of the decisions you need to make is in regards to the best way to do a 401K rollover, if you should roll it over at all.

When you do not have a job lined up you may be considering cashing out some of your investments in order to pay your bills. You should know that if you do this there are tax implications with this choice (many of which depend on which state you live in) but you want to know all of them before you make any decisions.

Try to pay bills and debts with unemployment and other income before tapping in to your 401K funds. Perhaps you have a savings account that you can live off of until you find another job. Or perhaps you have severance pay or unemployment. These would be good options as opposed to using your 401K. This would be a last resort if you really needed it.

If you have to use some of your 401K and have no other options, consider using only a portion of it and rolling the rest into a new account at either a local brokerage or an online investing company that provides 401K rollover. You will have to pay income tax on the cash portion you keep. The rest will be sheltered from taxes and there for you in the future when you retire.

Look into the possibility of borrowing against your 401K. Sometimes this can be a good option for you to get you out of a bad situation for a short period. The monies can then be paid back when things get better. This way your entire investment account will be secure and you will not be in a financial bind when it comes to tax time.

If you do choose to roll over your monies then you will need to fill out tax forms and request the money to be removed. There are forms 5498 from the IRS that you will need to complete to successfully roll over your account. Consult a professional when dealing with your 401K to effectively make wise decisions for transfers and rollovers.

But are they how to ride the indices?

Exchange Traded Funds (ETFs) have created a major question for fund managers looking for returns- Are they the way to handle these messy indices? They’re usually targeted to match indices and a good portfolio of ETFs can cover a wide range of possibilities.  The drivers in this type of investment are different to normal portfolio management, which can include an array of various values and issues. There’s no debt collection situation in ETFs as there is in normal portfolio investments, where losses have to be balanced relative to capital, etc. They’re very straightforward investments, where performance is easy to measure.

The index factor

The best example of an ETF investment is probably the blue chip type of ETF. These ETFs are like barometers, containing major market leaders and also good traders in their own right on the markets. A blue chip ETF will also be less reactive to the market, except for major moves, where, naturally, their mix values take effect.

The typical blue chip ETF is geared to exploit the market weighting of these major stocks, as well as their performance. Index based trading benefits from major stocks moving, which drives up the index or prevents it from falling as a result of other stock price changes.

With ETFs, the ability to be instantly converted into cash on the market is another major selling point. Mutuals and listed trusts can do this, but they’re comparatively primitive investments, usually not as focused on indices, and unable to develop their index moves rapidly into instantly meaningful performance with a dollar value attached.

Downsides?

The natural question for investors in the current climate is, “How good are ETFs as defensive investments?” The answer has to be qualified, because like all investments, ETFs have both individual and generic characters, and so do their indices.

A truly dramatic example of the difference in the ETF market and the stock market was during the mortgage securities bust. The mortgage index based ETFs also went into a nose dive, but did a complete reversal in a few days, (not years or never) when investors realized these ETFs were holding top quality mortgage portfolios which weren’t affected by the big blowout.

The downside is often based on individual ETFs. Some ETFs are very highly performance-based, and have been accused of unrealistic claims to performance, like making profits at X times the index moves. Short selling ETFs have been targeted for a range of issues including performance and the losses suffered by investors as the market went back up. (It’s a matter of opinion whether some people really understand that the hedging issues in short selling aren’t some sort of debt recovery system or not.)

These are the exceptions, however, and a systematic comparison of ETFs and their indexes makes very interesting reading for fund managers. There’s over a trillion dollars invested in these funds, and that money’s there for a reason. If you’re looking for a good, flexible investment, ETFs have the answers that other types of investment just don’t have. Shop around, develop an informed opinion, and do some modeling of your options. It doesn’t get dull.