That Age Old Question – Property or Shares?

So you’ve got a little bit of money set aside and you’re ready to watch it grow. But which investment will give you the best bang for your buck? It’s an age old question – which is the better investment – Property or Shares?

There is a wealth of information out there and if you have little experience with managing your investments, it can become overwhelming. Here’s a quick introduction to both:

Property

Property is the go to investment for many people. It’s tangible – you can see it, you can feel it, you can experience it. And, generally it provides a good return on investment.

We are lucky to live in a country that offers negative gearing as a tax incentive for property investment. Negative gearing allows property investors to claim deductions against their ordinary income for expenses accrued through their property investment which are not covered by rent. For example, body corporate and management fees, maintenance and repairs, loan and mortgage interests, building insurance, council rates and land tax.

Property is also seen as a ‘safe’ investment. Property cycles are less volatile than the stock market and the fact that it is a physical asset, investors believe there is less risk of losing their hard-earned savings.

This all sounds positive, however, the thing to remember with property investment is it’s a long-term game. While reducing your tax bill at the end of the financial year sounds enticing, the true return on your investment won’t be realised until you sell the property and hopefully make a capital gain.

Shares

Purchasing shares can be daunting for the inexperienced investor. You’ve worked hard to put those extra dollars into your savings. Maybe you’ve foregone your daily coffee or committed to making homemade lunches for the past 12 months. Whatever you’ve sacrificed to get there, it’s not easy to invest in something you can’t actually touch.

Then there’s the unpredictability of the stock market. We are always hearing on the news about the ASX going up and down and if your savings are tied up in shares, that’s your investment rising and falling in value daily.

But here are some positives to remember about investing in shares.

1. Information is readily available. When you have a share portfolio, you can log in daily and see where your money is at. If you don’t like the way a particular stock is looking, you have the option to sell it and purchase a share that offers less risk.

2. Volatility can be a positive. Sometimes taking a risk can pay off and as opposed to investing in property, shares offer the ability to grow your investment relatively quickly if you’ve purchased well. Buying and selling on the ASX drives growth. If you purchase a share while it is low, you could potentially double, even triple your investment within a very short period of time.

3. It’s easier to jump in. Unlike property investment, which requires a large sum of money and generally a large debt on the part of the investor, you can jump into the stock market with as little as $100 and no need for getting yourself into debt.

4. Spreading the love. Remember how we said last week that putting all your eggs into one basket can be risky. Purchasing shares allows you to diversify your investments. With the guidance and advice from one of our qualified financial planners at Campbell Green, you have the option to spread your wealth by investing a portion in safer shares which offer less risk and a portion into higher risky shares, which offer a larger return on your investment.

5. Quick access and less fees. While it may take years to realise the capital growth you are looking for in an investment property, it’s relatively easy to sell off a portion of your shares if you need access to funds quickly, without having to sell all of your entire investment.

Property investment also involves a lot of extra fees. There are bank fees, solicitor fees and agent fees. When you invest in shares, you only have to pay brokerage fees.

So, which is the better investment. As you can see above, both options offer positives and negatives. While property may seem safer, shares might offer a quicker return on your investment.

If you purchase in the right location, property will always experience demand and it therefore offers reliable growth. Whereas shares can be unpredictable.

According to the ABS, the median price of dwellings in Australia in December 2016 was $656,800. Compare this to 10 years earlier when the median house price was $286,075. This is an increase in value of 129.59%. Not bad for a decade long investment.

In the end, the answer to the age old question – which is the better investment – Property or Shares? Is both. Ideally, your investment portfolio should include a combination of property investment and shares.

If you need some guidance on how to best diversify your portfolio, speak to one of our qualified and experienced financial planners and consultants at Campbell Green today.