We're big on property, but diversification helps

YOU may not feel particularly wealthy but by world standards Australians overall are reasonable well off.

In fact, the 2013 World Wealth Report recently issued by Credit Suisse, shows Australians have personal wealth averaging $US402,600 per adult - the second highest in the world after Switzerland.

This 'wealth' figure takes into account our financial assets as well as personal debts, and the same report highlighted other intriguing statistics. Apparently the proportion of Australians with personal wealth above $US100,000 is the highest of any country, and equal to eight times the global average.

It's all good news so far, but the study also noted that a solid chunk of our personal wealth - around 59%, is tied up in property. Again, that's the second highest level internationally, this time behind Norway, and it reflects the strong level of home ownership we enjoy in Australia coupled with high urban property prices.

I have always been a big fan of owning your home. Without the forced saving of a mortgage I reckon plenty of people could retire with next to nothing. However I'm also a great believer in the value of diversifying your wealth across a variety of assets - not just property.

Spreading your money across different investments means you won't be hit by the full impact of a downturn in any one market. In addition, different types of assets can offer various tax benefits.

Dividends earned on shares for example, can be lightly taxed.  Capital gains made on the sale of shares owned for at least 12 months also enjoy tax concessions.

If you're not sure which shares to invest in, a managed share fund is an easy way to get a lot more diversity than you could probably achieve as a direct sharemarket investor.

Managed funds are available that provide access to other asset markets like commercial property, bonds, fixed interest or a mixture of all these.

How you choose to diversify depends on your age, income and family situation. A young single person for instance may want to concentrate on shares - both Australian and international, looking for long term capital growth. My retired clients on the other hand are likely to have a more diversified, lower risk portfolio focused on producing income. Your financial planner can explain which sort of investments can help you achieve your goals.

The key point is that anyone can be a successful investor by following a pretty simple prescription - spreading risk over a diversified range of assets, and hanging onto them for the long term, through the good and the bad times.

For more on how each of the different asset classes work, take a look at my book Making Money.

Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.



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