7 misconceptions about investing for wealth

He acknowledged that while a dream of wealth creation can be the kernel that gets an investment journey up and running, successful investors must “recognise the fact that you’ve got to put in the foundations first and then propel forward”.

There are numerous potholes along the way that can interrupt an investor on the path to achieving wealth.

These are seven widespread misconceptions that the trio warned investors to keep an eye out for:

1. Wealth is a set destination

Many individuals enter the world of property investment with a preconceived idea about what “wealthy” means to them.

For some, wealth may mean retiring early; for others, it may mean having assets to pass down to children, or replacing income with passive or residual cash flow. As the three experts explained, however, financial goals evolve throughout an investor’s journey.

Mr Tarrant noted that as people hone their understanding of “the mechanics of wealth”, their “mindset around what ‘wealth’ means changes”.

“What’s important is that the strategy you deploy has enough flexibility in it just to slightly move left or right to accommodate whatever those changes are,” Mr Waters stressed.

2. Investment will give your kids an asset

According to Mr Kumar, investing with the aim of leaving assets for children is “the biggest fallacy” that he and Mr Waters come across.

Managing a property portfolio is a skill that takes time and guidance to develop, and without this expertise, family members are unlikely to make optimal use of property assets.

Mr Kumar explained: “If the education isn’t there for the kids, they are clamouring to get to the money. And what’s the easiest way to get to the money? Sell down all of your hard work.”

3. A good strategy will give you control

It’s important to have a plan, but investors should not mistake strategy for control.

When it comes to property, Mr Tarrant wryly observed that “you might have a plan, but the market also has a plan, and you have no influence on the direction of the market”.

From COVID-19 to the global financial crisis, the housing market undergoes peaks and troughs that cannot be anticipated or controlled.

At the same time, however, this does not mean abandoning strategy altogether. Instead, Mr Waters recommended swapping a “static plan” for a dynamic, adaptable cluster of strategies that can be iteratively reworked to meet the current market demands.

“You need to build a strategy which is robust enough to be able to manoeuvre left and right, operating in a grade depending on what the market is doing, but stay strong and straight to the course.”

4. Investors are property traders

If you see investment as an in and out job, then “you’re not an investor; you’re a trader”, according to Mr Waters.

“There’s a very, very big difference between investing and being an investor than buying for the sake of it,” he added.

While many Australians with cash to burn are lured in by the thought of purchasing a property, holding onto it for a few years, and then letting it go for a profit, this is not a path for long-term investment success.

Instead of buying an asset because of short-lived media trends or peer influence, Mr Waters noted that true investors take a far longer view of the property game.

5. You need to act fast

“Being in the market for a long time is probably one of the critical success factors of being an effective property investor,” stated Mr Tarrant.

There can be pressure on investors to buy fast and sell fast, but Mr Kumar noted that “the longer you are in the game, the more end profit you have”.

Partly, a longstanding portfolio is useful for obtaining finance. “Your ability to hold property is intrinsically connected with your ability to get serviceability from banks, your ability to pay your debt” and “your ability to normalise fluctuations of the family budget”, highlighted Mr Tarrant.

Long-term investment can also help individuals weather the storms of market crashes and recessions because it gives them the cash flow management capacity to outlive these tough times and come out on the other side with their assets still intact.

6. You become an “investor” at five years of ownership

According to Mr Waters, data from the Australian Bureau of Statistics has demonstrated that the average investor holds onto their property for five years.

“They may have made a million dollars, they may have lost a million dollars,” he said. “But if you compare that to how long you realistically need to control a portfolio for to really make it worth it, which is decades, that life cycle is very, very short.”

Five-year investors rely on luck for profit, but long-term investors can have genuine security. As Mr Tarrant reiterated: “Life cycles in properties are measured in decades.”

7. Copy the example of your role models

When it comes to investment role models, good company never hurts. But the key to realising investment success is mentorship, not mimicry.

“When we are starting out, we often try to emulate the success stories we’ve seen on Facebook,” said Mr Kumar. “Let’s say the article you read was someone that made really good progress in a Sydney market – that may not even apply to you because you may not have that much of a slippage.”

Like an elite athlete, the trio recommend you “surround yourself with people that have the scars to be able to guide you” but don’t make decisions on your behalf.

After all, as Mr Waters noted: “The mental aptitude of the individual investor will determine their success.”

Listen to the full conversation here.

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