Is it better to invest in property or shares?

April 17th 2019 | Categories: Investing |


If you’re looking to build an investment portfolio, you’ve likely thought about whether it’s better to invest in property or shares. Asking if property or shares are a better investment is, unfortunately, an oversimplification. It’s a bit like wanting to know how long a piece of string is – you need more information before you can answer. It’s important to seek personalised financial advice before banking on any investments. It also helps to keep yourself informed and understand the various risks and benefits of both property and shares. To that end, let’s discuss what you should consider when deciding what to invest in.

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What are shares and how do you invest in them?

Simply put, a share or stock is a unit of ownership in a corporation. If you possess shares in a company, then you’re entitled to a proportionate amount of the organisation’s profits, paid to you as dividends. For example, say you own 1,000 shares in a business, of a total 100,000 shares. This means you would own one per cent of the organisation and receive one per cent of its dividends. Shares are sold on the stock market or exchange – such as the Australian Securities Exchange (ASX). You’ll typically buy them through a broker. There are a number of different types of brokers, from online “execution only” through to full-service. The former will facilitate your transaction and might provide access to company research, whereas the latter is able to assist you in filing paperwork and provide advice on what shares to buy or sell. You’ll pay a greater brokerage fee for a full-service broker, but have the advantage of professional advice. You can also make money in the sale of shares back to the stock market, as the assets may have appreciated over time. For example, while you might have bought your shares for $10 a share, you might later sell them at $11 per share for a 10 per cent return. On-exchange investments are held by 62 per cent of Australian investors, the vast majority of which are shares reports the ASX.  

When you invest in shares of a company, you receive a proportionate amount of its profits.

What is an investment property?

Meanwhile, the same research shows only 37 per cent of Australian investors holds any investment property. Despite this, investment property is arguably a more straightforward concept. It’s simply commercial or residential real estate purchased and leased to yield a return. Take, for example, a rental home. You’ll buy a piece of real estate and list it on the property market either with the help of a property management agency or by yourself. A tenant will move in and make regular rent payments, which may go towards the mortgage or into your pocket. You might later aim to sell the property in hopes of making a significant return due to appreciation or any capital improvements you’ve made.

Pros and cons of investing in shares



●      Liquidity: Share investments are generally more liquid, so your cash is not tied up for extended periods.●      Volatility: Stock prices can fluctuate in the short-term, which may be unsettling for investors and make liquidating less appealing.
●      Ownership: You can own part of a business without contributing to its day-to-day operations. You may be involved in shareholder meetings.●      Capital loss: You may make a capital loss and stop receiving dividends if a company you hold shares in enters receivership.
●      Assistance: Full-service brokers, mutual funds and other investment facilitators can make share investing relatively hands-off and straight-forward.●      Discipline: Investing in shares can be very emotional due to peaks and troughs in stock prices, so it often requires strict discipline.
●      Capital growth: Wisely invested shares have the potential to make capital gains at a faster rate than property typically would.
●      Dividends: You might receive regular dividends as income or to reinvest. If dividends are less than interest payments on the loan used to fund your investment, you may be able to reap tax benefits (negative gearing).
●      Affordability: You may be able to buy shares with a lower starting capital than you would need for property.
An investment property can feel more familiar and comfortable for new investors.

Pros and cons of investment property

Pros of investment properties

Cons of investment properties

●      Familiarity: Australians generally feel more confident investing in real estate, according to the ASX Investor Study. This may be because it’s a more familiar concept.●      Greater involvement: Being a landlord typically requires more hands-on involvement. Property managers can reduce your workload but come at a cost.
●      Tax benefits: Negative gearing and significant capital gains discounts are available, however, this may change should Labor come into power in the 2019 general election.●      Expensive: Real estate often requires significant capital to purchase. This also means your money is concentrated in a single asset rather than being diversified.
●      Inflation protection: Property may be used as an inflation hedge, protecting you against decreasing purchasing power of the Australian dollar.●      High-maintenance: You generally need to keep your property tenanted to cover rates, insurance and maintenance. Otherwise, you may lose money.
●      Security: As you’re buying a tangible asset, it’s often easier to feel secure in your investment. There is less risk of being defrauded as you can physically assess the property.●      Property market crash: Pressures on the property market could potentially lead to a crash, resulting in plummeting house prices and increased mortgage interest rates.
●      Property ladder: Rentvesting can be an attractive option to help you get on the property ladder and own your first home.
●      Equity: You can leverage the equity in a property much more safely than you might when borrowing might against existing stocks.
A diversified investment portfolio can grow your wealth and help you achieve your goals.

Considering the best investments for you

At the end of the day, the best investment for you comes down to a number of factors including:

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What you need to knowThis information is provided by Invest Blue Pty Ltd. (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice regarding those matters and seek personal financial, tax and/or legal advice before acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you.