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Property Investment for Your Pension

Property investment (overseas or at home) can be an important tool for providing extra wealth when you need it later on in retirement. The key to future wealth, however, is making sure your property investment portfolio is as diverse as possible.

Buying property for a future nest egg can take two forms - straight-out investment or property investment as part of a pension plan (e.g. self-investment pension plan/SIPP). Financial experts are unanimous that a combination of the two is the best way to ensure you plan for every eventuality and most agree that property should not be a substitute for a pension plan but rather part of it.

Property can go a long way to ensure a cash-rich retirement for several reasons. For example, owning your own home can reduce living costs during retirement. Property can be used to release equity to boost income and the ownership of an investment property portfolio means you can substantially improve your retirement income.

Although property investment in many countries (e.g. Spain, the UK and US) has seen more downs than ups over the past 18 months, investing in property undoubtedly gives the best returns in the long term. Profits from a property owned over a five to ten-year investment period are invariably higher than the equivalent interest on a savings account plus you may well have benefitted from rental (or similar) income during ownership.

But as well as bricks and mortar you may like to think about adding different types of investment to your portfolio (and future pension). The recent demise of stock and property markets in most Western countries has led investors to think outside the box in their bid for investments with better returns and potential.

Soft commodity investment and associated investment (e.g. farmland in countries such as Ukraine and Argentina) are high on the list of preferences. Windfarm, biofuel and timber investments have also arrived in individual investor portfolios.

This type of investment was previously exclusive to institutional investors or funds with large sums of money. However, these alternatives are now available to anyone, however low their entry level - the cheapest investments start at around £1,200.

These are medium-term investments with typical investment periods of around five to ten years. And many of these ‘non-property' opportunities offer an income stream as well as capital growth. The income stream is usually in the form of an annual dividend from profits made on the investment. For example, the sale of crops from an agricultural land investment or the sale of energy from a windfarm. A further advantage is that many of these alternatives to bricks and mortar are SIPP-eligible, which gives them the edge over residential property (difficult to include within a SIPP).

When considering these investments, you need to take the risk factor into account. While investment in agricultural land and windfarms is generally considered to be low-risk, this is not always the case with biofuels and timber. A country's biofuel production may be dependent on government policy (are therefore possibly likely to change) and timber production may be subject to changing ecological considerations. As with all investments, due diligence on these types of investment is essential.

The future is always uncertain, but with a diverse property investment portfolio you can do a lot to ensure that your future is not a poor one.

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