Ask most people in the UK what their best investment has been and I suspect 9 out of 10 would say, without question, their house.
I think in decades to come, we will look upon this as a golden age of wealth appreciation in the West. We have seen no other time like it. And we are unlikely to see any like it again.
The great housing boom may be near its end
In 1975 the average house price was £10,388. The current average house price is £195,279. That is a phenomenal rise.
It is no coincidence that during this time Margaret Thatcher brought about a transformation in how the British viewed property. No longer was it just a place to live; it was also an investment, and something to pass onto your children.
Britain today has one of the highest levels of home ownership in the world, and the average net worth of its individuals is perhaps the highest of any of the major nations.
My parents’ generation is perhaps the luckiest there has ever been; and future generations will also be lucky, because they will inherit this wealth.
But if this was the generation of home ownership, it was also the age when the West had hegemony over the world. This is now ending.
I think that the era of rapid house price growth is over.
One of the main reasons people bought buy-to-let properties was capital appreciation: you could earn money from rising house prices, to add to your rental income.
But the recent, and massive, increase in the taxation of buy-to-let properties substantially reduces your rental income. If I am right, and we will see much slower house price increases in the future, then suddenly buy-to-let becomes a much less attractive proposition.
And we are on the cusp of a global bull market
Very few people would say that their best investment has been in shares. In fact, I suspect many will have lost money in the stock market in recent years.
On 31 December 1999 the FTSE 100 stood at 6930.2. As I write this article, it stands at 6117.8. Overall, over 15 years, share prices have been losing money.
Even in China, the fastest growing country on Earth, the Hang Seng index was valued at 16962 at the turn of the century, and its level now is only 21504.
So shares are a terrible investment, right? Wrong. It seems amazing to me how people can be blinkered into thinking China is in crisis when it is still growing at 7% per year. It is astonishing that its stock market is one of the cheapest in the world.
My prediction is that the best place you can put your money is not buy-to-let, nor bank savings accounts, or even stuffing notes underneath your mattress.
The best investment in the world right now is shares.
But choose your investments well, and go where the growth is. So that means buying into UK small caps, and fast growing emerging markets, notably China and India.
I hesitate to say this, but we may be on the verge of the greatest global bull market in history.
So should you sell your buy-to-let to invest in shares? To put it briefly: yes.
