Wealthy Scots investors ‘too reliant’ on property market

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MANY at risk of losses by failing to spread their money across assets, says Jeff Salway

Scottish investors are too reliant on property and over-exposed to a bond market that experts believe could be about to implode, a new report warns.

Affluent investors north of the Border are putting themselves at risk of losses by failing to spread their money across different assets, according to new research from Bank of Scotland Private Banking.

Bricks and mortar is the investment of choice for wealthy Scottish investors, 45 per cent of whom have property investments worth an average of £311,363 (excluding their own main residence).

The amount of private money invested in property has jumped by more than a fifth since September 2011, despite a housing market recovery conspicuous only by its absence.

Iain Wishart, owner of Wishart Wealth Management in Edinburgh, expressed concerns at the dependence on property.

“People lost patience in equities and property seemed an easy way to make money. But you can’t access your money easily if it’s tied up in property, while many investors forget to think about realistic yields or factor in the possibility of void periods.”

The risk is increased by the fact that many people built up their property portfolios on the back of mortgages and debt, he added.

“For some it has gone well, but for many others it hasn’t worked out. If you’re going to invest in property, don’t have so much that you can either make a killing or be killed by it.”

The amount held in government bonds (gilts) and corporate bonds also soared as stock market uncertainty drove a flight to safety. A fifth of Scots investors have money in gilts, the yields on which have plunged over the past year, while a quarter hold corporate bonds, compared with a UK average of 19 per cent.

The increased ownership of bond funds poses its own risks amid growing fears of a bond bubble that experts claim is close to bursting point.

Some commentators believe gilt and bond prices have climbed so high that a sharp correction is now inevitable. The Bank of England’s quantitative easing programme has contributed to the spike as the money produced has been used to buy gilts, sending prices up and yields on a downward spiral.

Equity holdings have dropped over the same period, the research shows. Investors who slashed their equity exposure have missed out on the recent stock market rally, which saw the FTSE reach a five-year high this week.

Less than seven in ten wealthy Scottish investors hold stocks and shares, down from 82 per cent in September 2011. The average amount invested in equities has also fallen sharply since then, from £193,145 to £154,053. Yet just 15 per cent of those questioned felt their money was spread across too thinly, despite the increased reliance on property.

But diversifying by investing in different assets is the best way to minimise the risk of heavy losses, warned Paul Lothian, director and chartered financial planner at Verus Wealth in Dundee.

“Clearly, property investment is not the panacea that many imagined during the boom, although that can probably be said for just about any asset class at some point in history,” he said. “I have no doubt that property will be the star performer again at some point in the future, but given that we can’t know when or for how long, investors should accept that by not attempting to attend all the parties, they will also avoid many funerals.”