Question:

I am a 38-year-old woman.  My only assets are my retirement annuity (into which I've been investing 15 percent each month since I started it many, many moons ago) and an emergency fund in a money market account.  I have no debt.

I was thinking about buying the home I live in until I started doing research; now I'm not so sure.

Won't I be overinvested in property if I own the house I live in, seeing as though my RA has a property component?  Well, come to think of it, even if it was possible to have my RA invested 100 percent in shares I'd still be overinvested in property if I bought this house (as it is worth more than my whole RA).  Or am I mistaken?

Also, it seems that one can only realistically expect property to slightly beat inflation in the long-term.  In other words, it's not really all that great an investment if you want your money to really grow.  Should I rather rent and keep on investing in the RA?  I'd really like to keep things (i.e. investments) simple; this is important to me.

Answer:

Deciding on whether to buy or rent a property is more a personal decision than financial. Ideally your primary residence should not be considered as an investment, but rather a "lifestyle asset" and hence the more personal nature of the decision.

However, most personal decisions are impacted by financial considerations so let us review the facts in principal.

Growth

Your assumption of residential property of around one percent is an accurate one and in line with international experience.

A prudently managed retirement annuity should be able to deliver inflation plus five percent over time provided the majority of the 75 percent equity exposure is utilised.

This, however, does not give an accurate picture from a comparison in that although you are likely to get the higher growth percentage in the RA, the capital balance upon which it is compared is likely to be lower.

Let’s take the following example:

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