Real estate as single retirement strategy risky, financial expert

A local financial expert has suggested that buying multiple properties as a single retirement strategy is risky.

Michael Lashley, Chairman and Chief Executive Officer of Lashley Financial, shared this assessment recently at a pre-forum seminar, “Personal Finance Strategies for 2015 and Beyond“, held as part of the 6th Annual Fortress Investment Forum hosted by Fortress Fund Managers at the Frank Collymore Hall. There, attendees heard about practical strategies for managing their personal finances.

In response to a question from an audience member about the viability of investing in real estate, Mr. Lashley said: "One of things we do not recommend generally is acquiring several apartments as a retirement strategy. That is very risky for one very simple reason, the problem of tenants who don't pay. We recommend real estate as part of a portfolio just like we would for all other assets but we put it on the riskier end of the spectrum."

In response to a question from an audience member about the viability of investing in real estate, Mr. Lashley said: “One of things we do not recommend generally is acquiring several apartments as a retirement strategy. That is very risky for one very simple reason, the problem of tenants who don’t pay. We recommend real estate as part of a portfolio just like we would for all other assets but we put it on the riskier end of the spectrum.”

The financial expert added, however, “Typically, for a mortgage and a house, banks will lend money at low interest rates so it can become a route to wealth creation if you recognise your house as an investment. If you do that, you must be willing, at some point, to sell it as opposed to buying a house and keeping it forever.”

Continuing, Mr. Lashley said, “If that’s the approach you’re willing to take including taking equity out of the house and using it to build your investment portfolio, it makes quite a lot of sense. It is, however, something that requires knowledge and skill, care and perhaps guidance. And I wouldn’t suggest you run off and do that without knowing what you’re doing. You need to understand it first.”

Risk tolerance impacts investment returns

During the seminar Mr. Lashley also spoke about the impact of risk tolerance on investors. “Your ability to tolerate risk determines the type of return you can expect, but risk without knowledge may be worse than a gamble. As a result, investing in knowledge should be your first investment. Successful investment is all about common sense. We have a lot of that in Barbados, but the problem we need to understand is that if we risk nothing we’ll be risking a whole lot more.”

Speaking on key life decisions that affect personal finances, Mr. Lashley noted that one's most valuable asset was typically their ability to earn income. "The career you choose determines that. I know there's been a lot of talk about entrepreneurship and self-employment but I don't think the majority of us can or should be entrepreneurs. It is not an easy path to walk," he explained.

Speaking on key life decisions that affect personal finances, Mr. Lashley noted that one’s most valuable asset was typically their ability to earn income. “The career you choose determines that. I know there’s been a lot of talk about entrepreneurship and self-employment but I don’t think the majority of us can or should be entrepreneurs. It is not an easy path to walk,” he explained.

The CEO also advised the audience that in order to create financial prosperity they should spend less than they earned (earn more than they spent), protect what they owned, and invest wisely for the future. “If you can create alternate sources of income that is great.”

Other strategies shared included saving in advance for major purchases such as a vehicle, and wise use of credit cards. “It’s important to distinguish the truly essential from the merely desirable. Also switch from paper to plastic, but do so carefully. We recommend the use of credit cards but one of the things we say is that credit cards are excellent except for credit. So don’t take credit on your credit card.

With regard to emergency funds, Mr. Lashley described them as “essential” in the event of job loss or a medical emergency. So essential are they, in fact, that the financial expert said that Lashley Financial was unwilling to take on clients who were unwilling to set up an emergency fund.

The size of the fund is dependent on how long it would take to get a job if one was lost today. For some people that is a year. If you do use the money in the fund you need to put it back.” He added that the emergency fund should be held in an instrument where it was accessible within 24 hours but not within 15 minutes.

Lashley Financial focuses on personal finance, business guidance, education and training. The company delivers personal and business solutions that encourage learning and action.

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