The question is not an unusual one and it has been asked many times, but which option provides you with the edge you’re looking for? Certainly there are pros and cons for both – that’s the answer you were expecting. But let’s break down the aspects to consider, “tale of the tape” style and see which one will deliver. Again, the final decision must always be yours and is dependent on your individual circumstances.
Ease of entry
We’re told that when heading to snow country for the very first time for say 3 days you have a choice to make – ski or snowboard. Some instructors will tell you that snowboards are easier to get started on but harder to become really good at and the opposite applies for skiing. Maybe yes, maybe no but will the same be true for property investment versus shares?
Well that all depends on whether you can get your mitts on around $691,000 because that’s the mean price of residential dwellings at the moment. Yes, you really only need to find a deposit but that’ still going to be significantly more than the $1000 you’ll need to start a share portfolio.
Ok firstly, there’s no such thing in the world of investment. Sure over the course of the medium to longer term, things flatten out but there will be undulations at the very least. That said, those peaks and troughs in the share market can be far more pronounced and regular than the shifts that occur in the property market. The share market routinely reflects political and economic nuances whereas housing fluctuations are less reactive.
In many cases, you’ll find that property demands you put all (or most) of your nest eggs in the one basket. There’s safety in numbers so diversification is your friend. Share portfolios, by their very nature, lend themselves to risk-spreading across a variety of industries, countries and more.
Cash! And risk pt1
Ok, let’s say you need to put your hands on some cash for a key purchase, upgrade, re-investment – whatever. This is an interesting one because the deciding factor probably speaks to a simple qualifier. How much? If smaller amounts are needed, accessing limited funds from your portfolio is simple – unless the company’s value falls dramatically (it can happen) leaving you less at that moment than you anticipated. Worse, if the company into which you’ve invested funds goes bust, you’re in line behind the liquidators…
Selling a property, as you may well know, can be a convoluted process taking weeks and sometimes months. Realistically, the value should not fall dramatically (has happened though) and many can bank on profiting from their property investment. It would seem that property is a more dependable and stable income source.
Risk pt 2
Firstly, expenses. Think about property maintenance, rates and taxes, insurances and more taxes. Think about interest rates. Interest rates can increase your repayments and many find their returns stymied by interest rate fluctuations. Couple that with the all-important occupancy and that leaves the property investor plenty to think about. Too much? The last thing you want is to owe the bank more than the property is worth, particularly with talk that negative gearing could be on its last legs due to budgetary pressures.
Time and effort
Let’s be clear – there’s no such thing as set and forget. That said, the share market typically demands research, vigilance and regular deposits into your personal knowledge bank. Property is a different story, the research comes prior to point of purchase and generally speaking the rest is a matter of maintenance (in its many and varied forms). The share market can handsomely reward the diligent researcher and punish those that frequently take their eye off the ball.
Alright, we need a tie-breaker and the tie-breaker is, as always, your personal circumstances. Those should be at the forefront of your considerations – always.
And given that there are certainly more investment options than simply property versus shares, you should enlist the help and advice or your trusted adviser to help make the call. Feel free to chime in with your opinions and experiences, questions or concerns.
Listen to the podcast here where we debate this blog!
Zac is a qualified financial planner at Pekada and host of the Wealth Collective Podcast. Living in Melbourne, Zac has six years of experience in advice and specialises in wealth accumulation and protection strategies. He loves to keep his finger on the pulse for the best strategies for wealth accumulators looking to build and protect their wealth tax effectively. Zac has been featured as an expert in Money Magazine.