The simplest asset class classification is stocks, fixed interest, property, or cash. Those classifications can be divided into numerous subclasses, such as houses, units, offices, factories (property), or even houses in America, Queensland or Perth, etc.

What may surprise many investors is that the real property you choose is not the most important decision. It is much less important than the decision to be exposed to an asset sector. In other words, whether a fund manager selects an industrial investment in, say, Poland or a retail investment in, say, Sydney or a house in Perth is a much more important decision than individual properties within that asset sector. Why? Because if the demand for industrial space in Poland falls, none of the properties within that asset sector will increase; if Perth’s residential market goes up, they will all go up.

The Australian Financial Review reported the opinion of the director of Macquarie Investment Management, who said that “asset allocation, rather than security selection, is the key to creating sustainable wealth.” It is essential, for property, to invest only where there is positive population growth.

Because, according to Dr. James Skinner of the University of Queensland’s Applied Population Research Unit, population growth of 50,000 creates a need for approximately:

* 18,000 new homes,

* 600 new retail stores

* 450 hospital beds,

* 125 new doctors,

* 25,000 additional cars.

Have you ever wondered why the minority get rich while the majority fight? It is because the rich understand these principles and invest their money (usually borrowed) in assets that increase in value, while the poor invest their money (usually borrowed) in things that make them feel rich, but whose value decreases (such as boats, cars and various fashion products).

This is the essence of wealth creation. Invest in assets in growth areas as soon as you can and don’t borrow products that decline in value. If you want to become a millionaire overnight, property is not for you. However, if you are willing to take 10-20 years, ownership is the answer.

The property works although it will never be perfect. You will never find the perfect home or the perfect financing, but you will find a vehicle that will provide you with financial security. Don’t get carried away by panic reactions to short-term fluctuations, ignore the exaggerated media headlines and hang on. You will find that a long-term investment in a properly financed residential property is a “loss-proof” investment.