Should I Invest in Shares or Property?

It is one of the age-old questions, along with ‘If a tree falls in the woods and nobody is around to hear it, is the logging company still morally responsible for global warming?’, and the other standby, ‘Does he really love me or is he just fascinated with my booty?!’

We realise that any attempt to answer this question for you, specifically, would have to come with a Product Disclosure Statement … so we’ll give you some general comparisons and contrasts for the two types of investment.

The first thing to understand is that as the market changes, the numbers do too. You can pay investment managers to keep track of which is ahead currently for you, or do the hard yards yourself for a bigger return, as is the case with many things.

Returns
Returns for shares and property vary widely. Wider than the current budget deficit! Most investors can safely assume that over a 20 year period, blue-chip stocks and property will return roughly the same amount of cash.

ASX investment data on returns showed that for the twenty years to the end of 2006, Australian shares averaged an 11.1% return each year, while Australian property averaged an 11.7% return each year.
Over the ten years leading up to 2006, the same ASX data showed that shares yielded a 12.8% return, while property gave a stable 11.7%.

Liquidity
How easy is it to turn the cash that you’ve changed into intangible tiny company bits, or into an apartment block, back into cash if you need to?

If your investment strategy (or just your life strategy!) depends on flexibility and fast response times, shares will always be the winner. Property may be more stable, but can take months, or even years, longer than shares to turn it back into cash.

However, investment advisers do note that the flexibility that shares bring can promote riskier, and lower-returning behaviour. Less portfolio trading often equates to better returns in the medium term.

Physical versus mental investing
Property investment means that you have something real, that you own – with share trading, you are buying the rights to a certain portion of a company’s assets. Those assets are much less tangible than Jennifer Lopez’s – they include ideas, strategies, policies, human capital and patented processes. And all of these assets are much less stable than a house.

Diversity
Shares offer you a much more diverse investment for the same amount of money – and in that way, do go some way towards mitigating risk for the period of the investment.
If you really want to get on board the diversification conga line, though, your portfolio should consist of a percentage shares, and a percentage property.

Borrowing costs
The cost to borrow for property is much lower than it is for shares. If you aren’t using your own money to invest (which is actually a wise decision), your costs will be slightly higher to maintain a share-based portfolio.

Different types of risk
Shares are generally seen as the riskier option when it comes to investment, albeit the one with the greater potential to deliver returns. What often doesn’t enter the discussion is the fact that interest rates can rise as sharply as a company can crash and burn. Under Howard and Costello, the economy was especially vibrant, consumers were credit-card happy … and interest rates went up to curb inflation. If interest rates jump as they did in 2007/08, your mortgage liability jumps along with them. And if you are maintaining your own home, and one or two investment properties, you’ll feel like your wallet has gone a couple of rounds with George Foreman .. and not a couple of rounds of dinner-making, a couple of rounds of boxing!