It seems from the beginning of time, we have seen passionate supporters claiming and substantiating their findings that their favoured investing strategies, particularly property and shares, have historically given them the highest return. Property investors would say they have outperformed shares investors and vice versa.
The reality is property and shares generally do not move in harmony with one another. Each vehicle has its highs and lows at different times. Furthermore, it all depends on the investor, their experience, their preferences and their prejudices, as well as more concrete considerations like age, income and long term commitments and financial goals.
In choosing what kind of investing you would like to venture into, you need to take into consideration the scenario that suits you better. Consider your financial goals, lifestyle, motivations and personality. It would also be of great advantage on your part to remember not to put all your eggs in one basket and take a long term view.
So what’s it going to be for you? Is it property investing or shares investing? To assist which suits you best, here’s a rundown of the advantages and risks of each in a nutshell.
Let’s first take a look at investing in shares:
- Shares have a high liquidity (you can cash out really quickly).
- Share portfolios are easily divisible which enables an investor to sell down parcels of shares when small amounts of cash are required.
- You can start investing in shares with a low minimum amount of investment. You can easily open an online account and find shares to purchase.
- Investing in shares attracts only involve low transaction costs like brokerage on both selling and buying, and no stamp duty. Trading tools and software and further education or mentorship are optional on the part of the investor.
- Shares have lower ongoing costs.
- Share investing makes it possible to have greater diversification. You can opt to spread your investment to various sectors in the market and throughout the world.
- You can do a regular and accurate performance appraisal of the value and performance of your portfolio.
- Shares can give you high long term returns particularly in comparison to fixed interest and cash.
- Share investing can often feel like a roller-coaster ride. It can fluctuate on a regular basis.
Now, let’s examine investing in property:
You can increase your potential capital returns by borrowing a large amount of money against the investment property, therefore;
- A small initial investment can be leveraged into a big exposure to the market
- There is less volatility in property investing and the values of property don’t fall quickly
- There are potential tax advantages through negative gearing and depreciation
- There’s security and comfort for many because property is a tangible asset. You can exercise control over it, and drive past to look at it.
- You can earn an income which is paid on a regular basis through rent
- If you need cash, properties are highly illiquid. Selling a property can take time
- You cannot divide and sell a portion of your property. If you need $20 000, you cannot sell a bedroom
- You need a significant deposit or equity to begin property investing
- There’s an ongoing costs to maintain and manage a property
- There’s a transaction costs to buy and sell properties, are high
At the end of the day, it is possible to do both. But, like all investments, the bottom line is returned. Not all shares and not all property is created equal – get the right advice to make sure you don’t buy the wrong ones. And most often, the best advice is given by those who aren’t directly selling the investment itself.
And just as important is structure and strategy. What is your end goal, and how will these investments get you there. And are they being held in the correct structures for maximum tax efficiencies and asset protection?
With the right guidance and advice, a well balanced, diversified and structured property and share portfolio can set you up for a comfortable future.