Should I invest in apartments, stocks, or responsible companies?
Last May I took part in three webinars that in one way or another had investing as their topic. I wanted to deepen my knowledge on this topic because everywhere you here nowadays that everyone should start investing. These three webinars were all very different even though they were all around the same topic, I felt like I got an interesting insight on the topic and decided to share it with the rest of Proakatemia in a form of an essay.
The basics of investment.
Timo Turtiainen from Danske Bank held a webinar called “Sijoittamisen Perusteet” which was about the basics of investing. The webinar was held 19th of May and he talked about the very basic level things about investing, maybe even a bit too basic things for my taste, but I did still get something out of it. In this webinar Turtiainen talked about how important it is to have a good plan as a base for your investment and in this plan you should; evaluate the current state of your economy, think about why you want to invest, plan where the money to your investments will come from and optimize the levels of risks and goals. (Turtiainen, 2021)
One very important thing Turtiainen noted was that banks are encouraging people to do long-term investments because the reality is that not many people can make rationalized decisions within short periods. According to Turtiainen, the best base for becoming wealthy is regularly growing your savings. This is because you will get interested in your interest over time and this way the profit will be slow but rewarded with patience. He also reminded that risk and profit go hand in hand, meaning that the bigger the risk, the bigger the possible profit. To reduce the risks, he suggested decentralizing investments, but he also added that if you want to invest you have to accept the possible risks connected to it. (Turtiainen, 2021)
Patience seemed to be the key according to Turtiainen because he said that the stock market lives all the time and it’s normal that the prices go up and down regularly. His advice was to keep it cool and not panic because then you’re ought to make bad decisions. He said that the worst thing you can do is let your emotions control your investments, because then you may end up buying or selling stocks at inappropriate times. The biggest threat about emotions was the euphoric feeling you get when you feel like your success is endless with your investments, this is the moment when you need to cool down or possibly end up making very irresponsible and stupid economical decisions with your investments. (Turtiainen, 2021)
Current Megatrend and future of the stock market.
About the stock market, Turtiainen talked about how the US is still dominating them, but how he sees the technology replacing the stocks dominated by industrial industries. He also talked about some megatrends at the moment which are aging and the growth of developing economies. The first one is about how people keep getting older and older and the life expectancy keeps growing. This means that the amount of elderly people grows, and people want to make sure they’ll have possibilities when they retire. Investing into one’s retirement days is one big megatrend at the moment. The other one was about how the middle class gets wealthier and starts to invest their money too. China is a great example of this because there this megatrend is widely visible and through this, the economic power of these developing economies will grow and be seen in the stock market as well. (Turtiainen, 2021)
Even though many things Turtiainen was talking about were very basic level things that I felt like everybody already knows, I think it’s good to bring up things that feel self-evident, because it brings your focus back to them and there is always someone who knows absolutely nothing about the topic so building the foundation from the ground up is very important. I found the current megatrends very interesting to hear and I can say that I see the aging trend within my inner circle as well, because people around me are investing in their retirement plans. Also, the fact that our emotions play a very big role in our decision-making is something that should be discussed much more when talking about investing, because it can have long-lasting effects.
About investing in apartments.
Nina Norlund from ROI and rahamania podcast was having a webinar on the 14th of May about housing investments. The name of the webinar was “Asuntosijoittamisesta uusi tulonlähde” and Norlund who has at least 15 invested apartments herself shared her knowledge on how this type of investing works and what are the possible risks. Even though there are multiple ways of investing in real estate and apartments, her focus on this webinar was on the rental investment where the idea is that the rental will pay your mortgage through rent payments and eventually bring profit for you. (Norlund, 2021)
Reasons to invest in apartments.
First, she shared reasons to start investing in apartments and the first thing she said was that the apartment is concrete so it’s very nice to be able to see it, feel it and modify it. The changes in prices are very minimal compare to the stock market due to the apartment market being very steady and this also makes the income steady, and this then helps you to evaluate the income for the next couple of years well in advance. Income from the apartment is not dependent on your work which makes it more like extra money for you and it allows you to get the highest possible profit on your capital. You can yourself affect how much profit you’ll make and of course you can’t affect the stock market, but you can decide how to renovate the place, what furniture and styling you’ll do that will possibly pump up the price. You get to choose the rental yourself and this allows you to make good choices that will make the apartment long-lasting. The income from the apartment is monthly so it’s a great way to save for retirement and if you want to feel good about yourself you can rent the apartment to those in need of one. The market is very ineffective which makes it relatively easy to strike good deals when people want to get rid of their apartments quickly. Last, but not least of the reasons was that it’s absolutely fun according to Norlund. (Norlund, 2021)
Risks about investing in apartments.
No investment would be risk-free and apartment investing is no exception. Due to the possibility of apartments being sold quickly, you need to make sure you’re not overpaying, this can be checked by seeing the quality of the apartment building and in what shape the apartment is and where is it located. The housing association is one of the biggest possible risks and Norlund stresses that it’s better to buy a bad apartment from a good housing association than the other way around. If the housing association has a lot of depth or future renovations, it might come expensive for you if not considered when investing. There is always the possibility that you will be a risk too and this depends totally on how you make the decisions to invest and how you overall handle them. No matter how well you choose your rental, you can always end up in a bad situation where the person turns out to be someone who breaks things and in the worst-case scenario, you’ll end up paying for the trashed apartment yourself. Other risks include the sudden rise in interest, the location in case of being a relocation loss is and the political risks tied to possible new laws or other changes that affect the apartment investments. (Norlund, 2021)
How to choose the apartment?
Because the changes in prices are usually smaller and easier to detect, you have to opportunity to react to the changes. This also makes it possible to get loans from banks to your apartment investments than stock investments. Velkavipu translated to leverage is when you take a loan to fund your investments and the idea is that the loaned money is used so profitably that it makes more money than what the expenses of the loan are. Norlund also mentions that even though one of your apartment investments would be on the negative side, it does not matter as long as your income otherwise is stable. She also stresses that the location of the apartment is a huge factor because it affects how the price development changes. Investing in an apartment that has a very good location ensures that you’ll always have someone to rent it for and the price will stay up. When choosing the location, it’s wise to check what are the prices of similar apartments in that area of the apartment building. Take notice of the water payment, electricity, and treatment consideration. (Norlund, 2021)
The last piece of advice Norlund gives is making sure you know what you’re doing before going to the bank to request a loan. You need to calculate your income, monthly expenses and make a throughout the plan of how much you’d get rent from that apartment and what expenses it has. When you have done all the important calculations and research into the apartments you’d be interested in, you give the impression of a trustworthy person and someone who is responsible and knows what they are doing. The bank is not only more willing to loan you money, but you also know what you’re getting yourself into. Don’t give up if the first bank does not grant you the loan, ask around and compare the offers. (Norlund, 2021)
In Norlund’s presentation, the megatrend of aging and investing in one’s future was visible, she even mentioned how this form of investing is a good way to save for your retirement. I had never thought about asking for a loan to make an investment which I now feel like, why didn’t I think about it before. I think that is a smart way of using loaned money for a purpose and eventual profit. To me, it felt like there truly is a very low risk on investing in apartments, but the one thing I was wondering was the fact that I’ve heard so many horror stories about bad rentals breaking everything that I don’t know if I’d ever trust people enough to rent them an apartment. I liked how Norlund said about the investment being a good deed when you rent it to someone in need.
About responsible investing.
The last webinar was about responsible small investing, and it was held by Kaisa Kurittu the founder of Vinha on the 25th of May. The name of this webinar was Vastuullinen (pien)sijoittaminen and Kurittu wanted to stress the fact that she is not any trained professional, but a person who has been doing responsible investing herself for some time now and wants to share her knowledge. To her responsibility is the absolute necessity when it comes to investing because she wants to feel good about the profit she makes and not do it so that it would be ripped off from the backbone of other people or harmful to the environment. She believes that economic analysis is not the only way to invest, but you can also make calculations on responsibility. Because responsibility is an ever-growing trend that is here to stay, she believes the companies and industries that are responsible now are more likely to succeed and still be operational in 20 years. (Kurittu, 2021)
Her tactic is to buy and forget which means every month she invests in stocks or funds she feels responsibly good about and then she lets them sit. This way she doesn’t have to stress about the changes in the stock market and be alert all the time. She believes that the variety of how she purchases and the fact that she does it regularly ensures the profit at the end, even if some investments aren’t home runs. She plans to keep her investments and sell them at her retirement to get money to spend at that time. (Kurittu, 2021)
What exactly is responsible investing?
It’s about taking into consideration the environmental issues, social responsibility, and governmental ways when investing in stocks, funds, or anything else. The profit and risk profile of the investment gets better with better companies, better in sense of responsibility and ethics. You can also invest in an area of nature you want to protect and this way the responsible investment is not only about making a profit. The key thing about responsible investment is that the values of your investments align with your meaning that you invest only in things that do not make you wake up at night feeling guilty. When thinking about your values, it might be that you don’t want to invest in alcohol, cigarettes, birth control, or meat production if those things are against your values. (Kurittu, 2021)
How to invest responsibly?
First, you need to remove the companies and industries that you do not want to invest in and after that, you start to go through the ones that are left and choose the ones that feel best. You can also invest through themes, such as the environment, equality, or other UN goals for example. This happens through choosing companies or industries that are responsible for these matters or are fighting to make a change in these areas. (Kurittu, 2021)
You can evaluate the responsibility of investment by finding out what are the basic business practices of that company and how do they make their income. This way you can see if there is anything responsible or ethical in their core business. For Finnish people choosing Finnish companies is easy, because finding out their background and operations is easier for us since we’re in the same country. Follow the news because they tell something about the past, present, and future of the company and whether or not its actions are responsible enough for you. A good way to find out about companies is also through different ratings done by CDP, MSCI, or Eetti for example, but with these, you need to find out what are the ways of evaluation with these, because a company can get a different rating depending on what is the list focusing on. (Kurittu, 2021)
Here we can see the retirement trend to be mentioned again and it proves that it is a huge megatrend at the moment. I feel like what Norlund said earlier about renting the apartment to people in need could also be tied into responsible investing somehow. How I’ve learned about investing is that the economy and money are the only factors to whether or not to make it and this fresh thought about investing in responsible companies instead of the biggest and most profitable ones at the moment is very refreshing and makes me want to dig deeper into this possibility. I think it was very valuable to note that it depends on how the ratings are done about responsibility to how well the companies are rated. It was very valuable to hear three different points of view on investing, and this sparked the interest in me to learn even more.
Kurittu, K. Vastuullinen (pien)sijoittaminen. Webinar. Participated 25.05.2021
Norlund, N. Asuntosijoittamisesta uusi tulonlähde. Webinar. Participated 14.05.2021
Turtiainen, T. Sijoittamisen perusteet. Webinar. Participated 19.05.2021
Written by: Emilia Parikka