How much should you invest in property, shares and super?

A common question I receive is how much should I invest in property? That is, how do you know when you have enough, and should you start investing in other assets? 

It’s a good question because it invites people to consider their goals and develop a long-term strategy to achieve them. I set out some of the factors that you should consider below. But ultimately, it really depends on personal circumstances.  

Rule of thumb is you need 20 to 25 times income 

The first consideration is the value of the investment assets you have today compared to what you need by the time you want to retire. 

As a rule of thumb, you need to accumulate investment assets equal to 20 to 25 times the annual income you require to fund retirement. For example, if you aim to spend $100k p.a. when you are retired, you need to accumulate $2 to $2.5 million of net investment assets by the time you retire. These assets could include equity in investment properties (i.e., net sales proceeds less CGT and outstanding loans), shares and superannuation. 

Lifecycle of an investor 

If you are a long way from achieving your net asset goal, then it is likely that your investment strategy will need to be more aggressive e.g., borrowing to invest. However, if you are close to achieving this goal, then your focus should be on ensuring the mix of assets are correct. 

This video sets out the typical lifecycle of an investor e.g., why it’s best to start with property, then invest in super and shares. 

What is the right mix? 

Longevity risk is the risk that you will live longer than your financial resources will allow i.e., you’ll run out of money. To protect yourself against longevity, your investments must generate a combination of capital growth and income. Income will help you fund living expenses and capital growth will protect your asset base against the impact of inflation. 

For example, if you have $2.5 million of investment assets, your average return might consist of 3.5% income and 3.5% growth. This will provide you with approximately $88k p.a. of income. If some of this income is franked (imputation credits) or from super, you probably won’t pay any tax. In addition to income, the value of your investments will appreciate by $88k, of which you’ll need to spend $12k to top-up living expenses (i.e., to give you $100k p.a.). The remaining $76k will be reinvested and compound

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IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.