Ask a real estate agent which investment option is better and she'll tell you "Property". Ask a stock broker which is the better performer and he'll unequivocally state "Stocks." So which is better?

You can make up your own mind but here's six reason's why I'd invest in stocks over property.

For the record, I'm not saying that I wouldn't invest in real estate or that it's a bad idea to do so. I'm merely stating that there are reasons why stocks are much better

1. Liquidity

The beauty of investing in stocks is that if everything goes pear-shaped, either with your investment or your own life situation, you can readily liquidate them. In fact, you could have them sold and the money transferred to your bank account within an hour.

To liquidate property requires are far more tedious and time consuming exercise. The property needs to be listed with an agent who will then network with clients to view the property. If there is no interest at this level, the property will be advertised and in due course a buyer will be sourced.

Then there's the settlement period which could take from between 1-3 months before you actually see your money.

2. Transaction costs

Transaction costs when buying a property include stamp duty tax, conveyancing fees, mortgage transfer fees etc and could be well into the thousands of dollars. Selling your property will also incur fees including the agents fee, unless you go down the for sale by owner road and perhaps some legal costs. These exit fees will also be in the thousands of dollars.

Stocks, on the other hand, enjoy marginal transaction costs. Taxes may apply and perhaps a small percentage by a broker but nowhere near the amount we're prescribing with a property transaction.

3. Stocks outperform property in the long term

Traditionally stocks outperform property over the long term trend. Why? Because property is an asset used by companies which obviously affects their share price. Any upswing in property values is reflected in the company's balance sheet which determines their dividends or stock value. Downturns are also measured against the company's financials.

If the companies were no longer making profits then stocks would go down but so too would the value of property. People would be laid off, property values would fall as people try to reduce their mortgage debt and the value of stocks would still remain higher.

4. Ability to enter the market

Try getting into the property market with $5,000 and you'll find listed property trusts may be your only avenue (although most of these require larger entrance investments). However, with $5,000 you could start investing in stocks immediately.

This is the problem for new home buyers. Coming up with a 10-20% deposit on a $400k home is near on impossible. I imagine that in years to come many young people will turn to investing in the stock market long before they contemplate buying a house.

5. Maintenance costs

Stocks cost nothing to keep. Real estate, on the other hand, will consume large chunks of maintenance money. At the very least fashions and trends change and there is always the need to update and keep your property relevant in a fickle market - unless your prepared to accept less when selling it.

Gardens, lawns, fences, plumbing, painted areas... the list goes on and on - and on.

6. Transaction ease

This is where stocks stand out. As previously mentioned when it comes to liquidity stocks are very easy to sell and buy. All it takes is a phone call or internet transaction and the investment is yours.

Real estate takes much more. Time, legalese, paperwork etc makes a transaction to purchase or sell property look more like signing a peace treaty with a warring nation.

While property seems to have many downsides to investing than stocks, there is another option than buying a physical property - Managed Property Trusts. These are similar to stocks in that you are buying a share of the property rather than the whole property.

Many managed property trusts are listed on the stock exchange as well and enjoy all the convenience of buying and selling as stocks have.

Posted by Stuart at 6:44 AM | Permalink | Comments (3)

Your personal financial plan is your road map to financial freedom and independence. I probably should have underlined the word YOUR because we so often hand the reins of our financial plans over to others. We may do it consciously by accepting the latest morsel of advice hoping that this new piece of knowledge may be the key we've always been looking for. Or worse, we accept the "voices" in our head that tell us to deviate from our premeditated plan.

An analogy that may encapsulate my point is the many times I would head off 4 wheel driving in the bush. If I had unlimited time and an ongoing source of fuel I would explore every track that I came across. But I usually had a destination in mind before I set off. As an undiscovered track appeared I would stop and weigh the virtue of adventure against the map. If it took me in an opposite direction or would obviously increase the time taken to get to my destination then I could easily discern that it was a wrong way.

The same applies to your own personal financial plan. Sorry...did you just say you don't have one? Well that's like hopping into you car with a blindfold covering your eyes. You drive off aimlessly hoping to arrive somewhere but readily realising your chances of success are extremely limited.

Continue reading "Stick to your personal financial plan like superglue" »

Posted by Stuart at 6:50 AM | Permalink | Comments (1)

I read and responded to a post at DINK's personal finance blog which discussed the issue of stock portfolio diversification or focused investing. It was a great post.

Since reading the article I've thought more about this whole notion of portfolio diversification. I was trained to think that stock diversity was almost 'Biblical' and anyone serious about investing would diversify their stock portfolio to somehow 'hedge' their bets. It makes an incredible amount of sense. Invest in stocks where losses can be offset against gains and vice versa and hopefully those gains will outweigh the losses and produce a reward.

One reader recommended the The 15-Stock Diversification Myth presented by Bill Bernstein as the most concise argument for stock portfolio diversification. This stance implied that focused investing was not the best way to manage a portfolio and that diversification was.

I would probably agree with the DINK's. However, in saying that, and as I responded to the post,

For one investor diversification will be the answer while for another focused investing will be what they're looking for.

It all depends upon the amount of risk you are willing to take with your investment.

Continue reading "Stock portfolio diversification may not be the answer" »

Posted by Stuart at 10:03 PM | Permalink

Perhaps! In fact most investors claim that 23% take the financial advice from friends and family, 26% from traditional financial advisers and accountants and 20% from online resources according to this article. Sure, if your kids are still in nappies, or they struggle to manage a car then allowing them to influence your financial decisions could be costly - perhaps bordering on stupid! However, if your child is old enough with enough investing nowse under their belt - why wouldn't you?

Still, the cry for more online resources for investors increases. However, if the desire for online advice and resources becomes too great it will impinge on one of the other two sources of financial influence - and it won't be the family and friends!

Maybe the days for traditional financial advisers and accountants are numbered. People will always tend to rely on those closest to them to influence their decisions and that usually isn't the professional number-crunchers.

Posted by Stuart at 7:21 AM | Permalink | Comments (1)

What is your reaction when you read about ‘a portfolio of shares’, ‘a bull market’ or ‘diversifying risk’? Do you just see hieroglyphics and run for the hills?

Many find the thought of investing in shares a daunting task but if broken down into bite-size lumps of information, it is easier than you think.

The first bite-size lump to digest is the big question – “am I ready?” Tackling this question will set you on the road to financial freedom.

Continue reading "Ready for the scary world of stock portfolios?" »

Posted by Stuart at 7:11 AM | Permalink