But I know that most people still hang onto the old methods and so, before going into detail on how you can create your own 3+1 Plan, let me look briefly at the old traditional ways.
1. PENSION PLANS
You might ask what’s wrong with doing what millions have done in the past, which is to pay into a pension fund every month of their lives and then cash in at some time between 55 and 75 with a good income?
The sad news is that it is no longer a good income for most people. The success of your pension fund depends on two things; the state of the stock market and the efficiency of the people who are investing your money.
Unfortunately, both of these have failed. The Stock Market FT100 index is lower today than it was in the last century and at the time of writing The 3+1 Plan, the index is 30% down on what it was in 2000.
Secondly, most of the people managing your monthly payments have failed to earn you more than 3% p.a. on your hard-earned contributions. By an intricate system of fees, charges and dealing costs, they take over 30-40% of the money you invest with them.
The result of these two failures is that anyone cashing in on their pension in recent years has found that its value is much, much less than they hoped.
Worse is to follow. Your money, when you close your pension fund, does not all come to you. You can’t just take your money out and use it for whatever lifestyle you want to enjoy. You have to leave most of it with the insurance company.
It’s true that you can take 25%, but the rest has to buy an annuity. In the nineties, your annuity could have paid you 15% a year for life; today it is only around 5%. All those years of denying yourself in order to keep up the pension payments have too often come down to a miserable payout.
But that is not all. The little money you do receive from your annuity is then taxed. You paid for your pension plan out of your net earnings, but the government then taxes you at 20 or 40%, at a time when you most need your money.
The pension game may be great for the money managers, but not for you. You give your monthly money to someone you don’t know, who never tells you how things are going, and who generally takes 30% of it for their company.
The success of your investment depends on them, on the markets, on the interest rates and, even when you decide to stop throwing your money their way, they only let you have a quarter of it and use the rest to earn more fees fixing you up with an annuity.
It’s madness. In fact, my view is that pensions today are one big con! In no way do they guarantee you a financially better life.
2. SAVINGS PLANS
Of course, it makes sense to save money when you have more than enough to live on and are able to put some by for the future. Savings will build an amount of capital for your future, for you to use in an emergency or when you change your lifestyle, like beginning to create your own 3+1 Plan.
I personally used my savings as the capital to buy my first property. I had saved just under £10,000 and that was enough at that time to let me enter the magical world of property.
Sadly, although some schemes, like ISAS, are still worth doing because of the tax exemption, the return on general savings when they are taxed, is not good. Over the last decade, the interest paid on savings has often not been enough even to cover inflation. As I write this in the summer of 2009, it is difficult to find safe savings plans that pay a net 4%, while inflation on food alone is 6%.
Saving money each year is, of course, good for all of us, if only because it puts our money out of temptation’s way for a year or so, but it is not going to make you rich.
3. PLAY THE STOCK MARKET
This works for some people but not for most of us. Over the last fifty years, the stock market indices show that prices doubled, on average, every ten years. In theory then, a thousand pounds put in now will be £2,000 by 2020, but this is not the record of the last decade. Prices have not doubled, but almost halved.
I don’t like the stock market for two main reasons. The truth is that it is a sophisticated market which most of us do not understand, where insiders in the City are always ahead of us, and where you can buy at the wrong time and lose heavily. Most ordinary investors do not double their money; in fact they are often happy just to get their original investment back.
Just as importantly, I came to realise that playing the market takes time. It is not like it was in our parents’ day: you now need to watch your shares every day and sometimes every hour.
I don’t want to spend my life worrying about changes in a share price, worried that I should be buying or selling. That is not what life is about. I want an investment plan that I can set up and not have to worry about it. And so, I am sure, do you.
4. INVEST IN A bUSINESS
Potentially, this is a very enjoyable and the most profitable way of investing, if you have enough seed money to put into a business that you believe has a great future. But which companies, what product or service? Those who backed the best of the Silicon Valley IT geniuses, while they were still working out of garages, made millions, but most new companies fail and the risk for your investment is enormous.
5. PROPERTY IS THE ONLY ANSWER
As you already know by now, I believe that investing in Property is the only real answer. I believe that it is less risky than investing in new businesses, less time-consuming than investing in the stock market, more profitable than putting your money into savings, and leaves you with more of your profits than any pension scheme.
That is why it seems to me to be unarguable that a property portfolio is now the best way for you to make enough money to achieve your goal of financial security.
Let me remind you of just a few of the dozens of reasons why investing in a property portfolio makes sense to achieve your financial freedom.
The government doesn’t tell you these, nor do the banks or insurance companies, or all those personal financial advisors. That’s because they don’t make large fees out of your money, when you invest in a few properties.
1.Building up a property portfolio is simple, not always easy, but always fun.
2.Property prices have doubled every ten years for fifty years. The British like to own property and property prices never collapse like the stock market. Even in 2009, after the fall of the last two years, those who bought at the end of the last decade are still seeing their property worth twice as much as the price they paid for it.
3.Your property portfolio is run by you, the budget is controlled by you and not handed over to some stranger to play with, who then keeps the largest part.
4.Your profits from your property portfolio are not savagely reduced by management costs, which can be 40% of the money you pay in each month into a stock market pension plan. You know exactly from your own budgets the extent of your ‘management’ costs.
5.The running costs of your investment properties are dramatically reduced by the income from your tenants, so that your monthly outgoings are normally far less than paying premiums into some stock market pension fund.
6.When you finally sell any of your properties, all the profit comes to you and stays with you; it’s not kept from you and dribbled out to you with a few pounds each year.
But there is one point above all other points and it is unique to this form of investment. Property is all about leveraging. I don’t mean to cover detail points in this Introduction, but I must remind you of the unique joy of being able to