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10 wealth-building myths busted

15 Dec 2015

There are ten common financial fallacies that keep ordinary salary-earning South Africans from building real wealth.

This is according to Gert van Staden, CEO of the P3 Investment Group, who says South Africans should not be hindered by these going into 2016.

Van Staden explains the ten fallacies in the way creating and building wealth:

1. Investing is complex

Some of the most effective and efficient ways of investing your hard-earned money are also the simplest. For example, there is nothing complex about buy-to-let property investment: acquire a property and rent it out to a tenant, says Van Staden.

Some of the most effective and efficient ways of investing your hard-earned money are also the simplest. For example, there is nothing complex about buy-to-let property investment: acquire a property and rent it out to a tenant.

This creates an immediate, ongoing and inflation-linked income stream, as well as ongoing capital appreciation. Your money is not invested 'somewhere' in a complex investment vehicle, but in brick-and-mortar, where you can see and touch it.

2. The 'experts' deliver the best results

Investors are often deeply disappointed with the investment returns delivered by the so-called experts, and frequently stunned by the staggering fees that further decimated their dismal returns.

There are simple, straight-forward investment alternatives that do not require complex advice at exorbitant fees, and yet deliver solid returns. The top investment choice among these is a well-selected and properly managed portfolio of buy-to-let properties.

3. You need money to make money

While hard cash is required for most traditional investments, buy-to-let property investment allows investors to use "leveraging" or "gearing", which is simply borrowing money to invest.

An investor can obtain a home loan to acquire a property to rent out and then use the rental income to cover the monthly bond repayments.

4. High returns require high risk 

The truth is that there are low risk investments that produce high returns and a prime case in point is buy-to-let property. The monthly rental provides an immediate and ongoing monthly income, while the property itself produces ongoing capital growth year after year.

These dual returns produce high returns from a low risk investment, as all the risks associated with this investment can be managed, if not eliminated, through cost-effective and tried-and-tested risk management strategies.

5. Capital growth is the crux

The truth is that a predictable, stable annuity income for life, hedged against inflation, is precisely the outcome of a well-selected and well-managed buy-to-let property portfolio. Of course, such a buy-to-let property investment portfolio will also deliver steady capital growth, says Van Staden.

This fallacy drives investors to try to achieve the impossible: accumulating enough capital during their remaining working lives to secure a comfortable retirement for 20 or 30 years.

There is a simpler and more effective way of securing a comfortable retirement: investing in consistent, reliable income streams that will sustain you financially, not only in retirement, regardless how long you may live, but also well before and well after.

Certainly one of the simplest ways to achieve this is to invest in income-generating assets, such as buy-to-let property.

6. Passive income is a pipe dream 

The truth is that passive income is not only possible, it is also easy to create. It is as simple as investing in income-generating assets. Among these assets, income-generating property remains the choice for the world's wealthiest people, because it produces both an ongoing, passive income and steady capital growth.

7. All debt is "bad"

The truth is that there is "good" debt and "bad" debt. "Bad" debt, which includes, for example, clothing or furniture store accounts, credit cards and personal loans, traps people into a debt spiral.

"Good" debt allows you to acquire assets that grow in value and produce an income. Avoiding "bad" debt by saving up for the things that you need or want, while using "good" debt intelligently to acquire assets that will grow in value and produce an income, such as a buy-to-let property, will exponentially increase financial wealth.

8. Building wealth is only for the rich, educated and experienced

You don't need to be rich or educated or experienced to invest in property successfully. You can get a mortgage bond to buy a rental property, which then generates an immediate and ongoing passive monthly income to repay the bond. And because buy-to-let property investment is based on a proven, tried-and-tested step-by-step system, you don't need qualifications or experience, or much time, training or effort.

9. Stable, predictable returns are impossible

The truth is that a predictable, stable annuity income for life, hedged against inflation, is precisely the outcome of a well-selected and well-managed buy-to-let property portfolio. Of course, such a buy-to-let property investment portfolio will also deliver steady capital growth.

10. Inflation can’t be beaten

One investment that has proven to outperform inflation is buy-to-let property investment. Property price growth keeps pace with inflation over the long term and inflation actually boosts physical asset prices like property.

In addition, the monthly rental income generated by a buy-to-let property keeps pace with inflation, creating an ongoing inflation-hedged income.

"Many investors are surprised to discover just how simple and effective buy-to-let property investment is,” says Van Staden.

He says it is a common sense strategy implemented using a proven system: acquire a well-chosen property, rent the property out to a good tenant, and then watch your relatively small investment grow into a passive, inflation-linked income stream for life, while also producing capital growth.

“Do not let these financial fallacies prevent you from building real wealth in 2016. Buy-to-let investment is a simple, streamlined investment alternative that produces solid returns.”

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