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My advice • October 07, 2020

Investment Series – Real estate, always a good investment?

Should you invest in real estate or securities?

There’s a lot of interest in real estate these days. In fact, over two-thirds of respondents to the quiz in the previous edition of LBC News feel this is a good time to invest in that sector. That said, real estate requires a certain amount of financial stability and a more sustained personal commitment. Meanwhile, stock markets have regained their momentum.

What approaches can help guard against potential disruptions that could affect yields? Based on subject matter experts’ observations, the following are key points that shrewd investors should keep in mind to make the most of this particular context.

Louise Vézina
Senior Advisor, Credit
Private Banking
Pierre-Raphaël Comeau
Expert Advisor, Wealth Management
and LBC Financial Services Financial
Planner
Real estate: Seizing the moment

There are a number of reasons why the real estate market might be a good investment option and plenty of factors that can affect the viability of investing in a starter home or new residence. For more details, check out our Becoming a homeowner article. What’s more, interest rates are very low right now, which is an undeniable advantage. You also have access to the Home Buyers’ Plan (HBP) and several other municipal programs or incentives. Feel free to capitalize on this situation, but don’t get carried away by the bidding war that affects many sectors. The key is to stay within budget and, where possible, keep to the rule that it’s preferable not to spend more than 25% to 35% of your income on housing. While many are looking to rake in profits in resale, remember that home value growth is always at the mercy of supply and demand fluctuations.

Buying a building for leasing is riskier than usual, as many tenants are having difficulty paying their rent due to the pandemic, whose end is nowhere in sight. Furthermore, the new trend of rental condos makes competition for good tenants fiercer than ever. And remember that such an investment only pays off after a few years.

The rural exodus and buying secondary residences are also becoming prevalent trends. Whether this just a fad or a real change remains to be seen. It’s important to remember that buying a cottage or a secondary home isn’t necessarily an investment made to generate profit. It’s first and foremost a project to improve one’s quality of life. In tough economic times, this market usually takes the first hits.

In short, while real estate may currently show good investment potential, now isn’t the time to just dive in without carefully weighing the pros and cons. Make sure you’re getting good advice!

Diversifying to get the most out of markets

Over the decades, despite inevitable periods of volatility, investing in the stock market has proven its ability to generate positive returns for those who stay patient and don’t give in to panic.

One of the key distinguishing benefits of investing in securities is its flexibility. First of all, you can access it regardless of your savings. Through mutual funds and other similar vehicles, you’ll start off with fractions of companies operating in various sectors, or fixed-income securities. You can also adapt your portfolio’s asset allocation to different contexts quickly. Should the unexpected happen, all or part of your funds are even available in the short term.

Investing in the stock market requires far less commitment than real estate, as your funds aren’t tied up. While the risk associated with sudden downturns is always there, good diversification combined with a prudent approach can help you weather such events successfully. That’s why it’s important to have seasoned managers who can effectively adapt your portfolio’s composition to changes in the economic landscape and your investment horizons.

There are also solutions on the securities market enabling investors to earn periodic income from their investments, making it possible to get monthly cash inflows that can rival a building’s rental income. This approach can be an attractive option for those who don’t wish to bear the responsibilities of maintaining and managing a property. Above all, it’s a choice that reflects your preferences and dispositions.

The choice is yours

Whether you’re interested in real estate or investing in securities (or both), feel free to talk with your advisor. They can help you take stock of your financial health and set up an optimal investment strategy to put your money to work for you.

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