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Where to invest - shares or property? - Big Sky Financial Solutions

Where to invest - shares or property?



Residential real estate has long been a favourite investment with Australians. And while many people now own shares, either directly or through their super funds, the lure of bricks and mortar remains strong, with many still aspiring to build wealth through rental properties. So how do the two asset classes compare?

Looking at the table below, one of the biggest advantages shares have over direct residential property is liquidity – the ability to sell quickly if need be and sell a part of your holding, rather than the whole lot. The other main advantages revolve around the fact that shares don’t need regular maintenance and you don’t need a lot of money or substantial borrowings to enter the market.

However, there are other forms of property investment – commercial, industrial, retail, industrial – that individual investors can access through listed property trusts or managed funds. These investments offer sound diversification benefits and a better level of liquidity than is available through direct ownership of a home or unit.

Your personal goals



Capital growth assets like shares and property will generally provide solid long-term returns. However you should discuss the advantages and disadvantages of each with a financial adviser and work out a mix of asset classes to help you achieve your personal financial goals.

Shares are called ‘liquid assets’ because they can be sold quickly if necessary. Property is rarely sold in less than three months so is unsuitable if you think you may need cash in a hurry in the short term. Of course the ease of sale of shares has a downside too. Panic selling of shares in 2008 as markets crashed worldwide is evidence of this!

It is easier to add value to your property by making physical improvements and upgrades, whereas you can’t have a direct impact on your shares - they are subject to market fluctuations outside of your control. This can be unsettling, even frustrating, to some investors.

Unlike buying property, purchasing shares doesn’t require large amounts of money and your ongoing costs are minimal. Maintaining a property is costly and managing tenants and rent can be time-consuming and expensive. On the other hand, property is a tangible thing – you can see it and visually improve it through renovations or extensions. For many investors this is very satisfying.

Typical investment timeframes



Shares


  • Typically a 5 year market cycle
  • Minimum investment timeframe 3 years

Property


  • Typically 12 year market cycle
  • Minimum investment timeframe 7 years

At a glance: Advantages & Disadvantages



Shares



Property



Advantages

Disadvantages

Advantages

Disadvantages

Liquid asset
Difficult to add value

Potential to add value
Not liquid
Tax efficient
If geared, risk of margin call
Tax advantages
Potential loss of income - tenant vacancy or damage

Don’t need large amounts to invest
Ease of sale makes panic selling easier
Easy to borrow to invest
Need large amounts or substantial borrowings to invest

Minimal ongoing costs
Investors may lack knowledge, understanding

Tangible asset - can see what you have
Substantial maintenance & ongoing costs
Attractive returns over long term
Attractive returns over long term

Wear & tear on fixtures & fittings
Prospect of capital growth - inflation hedge

Prospect of capital growth - inflation hedge
Can’t sell just a part if money needed quickly
Relatively low entry/exit costs
High entry/exit/ borrowing costs

Easy to find accurate & independent valuation information

Difficult to find accurate & independent valuation information


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