2019 Guide To Investing: Shares VS. Property


It’s an ongoing debate: whether shares or property are the better investment option for the everyday family. Similar to cats versus dogs and savoury versus sweet, this is one topic that people seem to pick one side on and stick to it – despite any evidence against their chosen side.

Investing forms an essential part of any successful wealth creation plan. But with so much opinion-charged information out there on whether shares or property are the better choice, it can be easy to feel overwhelmed by which one you should pursue.

Don’t worry, you’re not alone. And you don’t have to feel this way.

Whether you’re looking to design an investment strategy from scratch, want to expand on what you’ve already achieved or just want to know how shares or property can help you create your dream retirement, this guide is designed to break down the pros and cons of both shares and property and help you decide which is the right option for you.

This comprehensive comparison of shares vs property includes:

But like any financial planning done right, deciding on which investment option is right for you starts with one thing:

Defining Your Investment Goals

The first step to deciding whether shares or property is the right investment choice for you is actually defining exactly why you’re looking to invest.

There are a number of reasons why the everyday family may be interested in investing, including:

  • Ensuring a comfortable lifestyle in retirement
  • Wanting to make the most of your income to grow your wealth for the future
  • Looking for a way to lower your tax obligations
  • Wanting to strengthen your financial safety net

Sitting down and defining exactly why you are interested in investing will help you decide on a tangible goal for your investment decisions. After you’ve decided on a goal, your investment strategy becomes focused on helping you bridge the gap between where you are now and where you’d like to be.

With a goal in mind, it becomes a lot easier to assess whether shares or property is the right investment choice for you. For example, those with a goal a long way into the future may prefer a more stable option with slower but guaranteed growth like property, while those with a goal that isn’t set in stone may appreciate the flexibility and rapid yet sometimes-volatile growth that shares can offer.

Deciding Your Risk Tolerance

As well as your investment goals, the decision of whether property or shares is the right investment options for you will depend on your risk tolerance.

To put it simply: risk tolerance is how much uncertainty you’re comfortable with in relation to the amount of returns you’d like.

As an investor, you need some risk in order to ensure a profitable return on your investment. So, with this in mind, risk itself is not necessarily bad. But understanding the level of risk that you’re comfortable with will play a strong factor in whether you choose to focus your investments in property or shares.

Historically, we’ve found that property has proven to be the more popular investment type for those with a lower risk tolerance who are looking to invest in an asset with steady but slow growth. Property is tangible, it’s something everybody is familiar with and something everybody needs. But property is also an expensive asset to invest in and, as such, often requires a long period of time in order to ensure a profitable return.

Shares, on the other hand, are cheaper because you don’t have to buy a whole house’s equivalent to generate a profitable return and they can be invested in at any time that suits your financial circumstances. Shares are also flexible and thus can be quickly sold or purchased as your needs or circumstances change. But shares also fluctuate in price on a daily basis and can go through periods of steep growth followed by a deep decline. This means that they appear a lot more risky than property, which some may not be comfortable with.

Deciding what level of risk you’re comfortable with will help guide you in your choice of investments.

Still unsure of what level of risk is right for you?

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“…Armed with the right set of knowledge…light can be shed on variables that lead to risk, allowing us to manage them.

— Daniel Wagner

Tangible VS. Intangible Assets

Perhaps one of the strongest arguments for both sides of the property vs shares camps is whether tangible or intangible assets are a better investment choice.

Property is a tangible asset, which means it can be seen, touched and occupied. It exists in a physical place, with the ability for you as the homeowner to check on it if the need arises, which brings a sense of comfort that can’t be ignored for an investor. But as a physical asset, there’s also the chance that it will become worn or outdated. As any homeowner will tell you, there’s always something more to be done when it comes to property. Grass needs to be mowed, carpets and kitchens to be replaced and walls to be painted. All of these additional expenses add up and may end up cutting into the return on investment you expected.

Shares, however, are intangible. You can’t touch them and you can only see them through whatever form of share tracking technology you prefer. That means that as an intangible asset, they don’t require any maintenance to ensure a profitable return on investment. All you have to do is choose which shares you’d like to invest in, tell the company where you’d like your dividends to go and sit back.

But shares also have caveats. As an intangible asset, there’s little you can do to influence fluctuations in the market or how your share performs. All of those decisions are in the hands of the company you’ve invested in. This can leave investors feeling a little at the mercy of the markets and how they’re performing, which is something some investors may not be completely comfortable with.

Regardless of your investment goals, having a better idea of whether you prefer a tangible or intangible asset will help you determine which investment option is right for your strategy.

The Benefits and Downsides of Property As An Investment

Choosing to invest in property can be a wise decision depending on your financial circumstances, investment goals and risk tolerance.

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Pros and Cons of Property

  • PRO: A History of Steady Returns

    Historically, property in Australia has performed very well in terms of return on investment. Ask any homeowner in the past decade or two and it’s pretty much guaranteed that they will tell you that the price of their home has gone up since they purchased it.

    And it’s not just homeowners who are benefiting from property. Data shows that investment properties generate an annual return of 9.6 per cent, when compared to shares at 8.9 per cent. This means that your investment is likely to give you some form of return on investment.

    Whether you’re generating profit by selling your investment property or renting it out, property is an asset that likely will always be in demand in some way.

    Of course, just because you’ve purchased an investment property, it doesn’t automatically mean that it will be a good investment. Just like shares, choosing a profitable investment property is determined by a variety of factors. That’s why we have a few filters we like to use when looking at investing in property for our clients, which include:

    • Location within 15km of a capital city
    • A vacancy rate of around 3% in the area
    • Good infrastructure prospects
    • Generally existing property with good land
    • Not buying for cash flow or tax saving purposes
    • Buying for capital growth
  • PRO: The Ability to Beat The Market

    The prices of shares is always known as shares are constantly being bought and sold. That means investors interested in shares are likely to be extremely well-informed, resulting in a liquid market that is as transparent as it gets when it comes to the price of the asset. And because investors are well informed, it becomes incredibly difficult to outperform the long term averages in the share market.

    Property, on the other hand, is bought and sold less frequently than shares, resulting in a market where it’s easier to outperform the market averages. You can do this by utilising research and contacts, which become available through a mortgage broker service or property specialist, to help you buy the right type of property.

  • CON: It's Labour-intensive

    Unlike shares, property is an investment asset that actually requires a hands-on approach to maintain. As property is a tangible asset, it can easily get worn-out or damaged or become out-of-fashion the longer you hold on to it. And because generating a profitable return from an investment property usually requires a long period of time, it’s likely you’ll encounter these extra maintenance costs.

    Owning an investment property also requires dealing with tenants, perhaps through a property agent which will incur further costs, as well as all the other small labours that are required to keep your property in a condition which will ensure a profitable return on investment.

  • CON: Your Money Is Tied Into One Investment

    In our opinion, diversity is best when it comes to investing. Having a diverse range of investment assets means that you’ll be able to weather any fluctuations in either the property or stock market with success.

    As property is expensive to initially invest in and often takes a long time to experience sufficient growth, it becomes common for investors to become tied into one type of investment asset. This can be a dangerous strategy, as if there was ever a fluctuation in the property market or a slowdown in property demand, your entire investment portfolio would lose value.

    With an investment property, you also have to factor in the loss of income that may came from a vacant property. If your property has no tenants for an unforeseen period of time, this additional potential loss of income could put strain on other areas of your financial world. That’s why it’s important to consider this potential scenario when deciding on whether property is the right investment choice for you.

    If you had an investment portfolio that included a mix of both investments and property, fluctuations in the market would not affect your entire portfolio and therefore it would not experience the same amount of loss.

Common Investment Property Strategies

Just like any investment asset, there are certain strategies that can be taken advantage of to ensure you’re making the most of your investment. While your financial advisor can help guide you in creating a strategy that is right for your particular financial circumstances, here are two of the most common investment property strategies:

Negative Gearing

A property is negatively geared when the rental return from your investment is less than your interest repayments and outgoings. This strategy, which involves borrowing money to invest, is used to reduce taxable income by claiming the interest portion of your loan repayments, as well as some other costs, as an expense.

This strategy is particularly popular with high income earners as any loss made from your investment property can be offset against other income earned – such as your salary – to reduce your taxable income, and your tax payable as a result.

Leveraging Equity

While many use the equity in their family home to purchase their first investment property, you can also use the equity in your investment property to purchase another investment property. This makes owning a portfolio of properties easier as time goes on. But it’s important to remember not to overextend yourself if utilising this strategy, because if you do and your home loan rates change it can have a big impact on your financial security.

Maxing out your equity is risky if not managed correctly, especially if it places you in the vulnerable position of having no financial buffer in the case of an emergency.

That’s why, regardless of which investment property strategy you choose, it’s important to seek a professional’s guidance before making any decisions. Having an investment property expert in your corner means you’ll always have ongoing support for managing your investment properties, meaning that you’ll never have to worry about whether you’re on track to achieve your investment goal.

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SMSFs and Property

As property is an asset that produces slow but steady growth, it is an increasingly popular investment option for those with SMSFs, or self-managed super funds.

Investing in property using an SMSF has a number of additional benefits on top of those associated with investment properties themselves. These include the ability to:

  • Borrow money to buy an investment property through a limited recourse borrowing arrangement (LRBA)
  • Lease a commercial property back to themselves if owned by a small business owner
  • Create a tax-effective way of purchasing commercial property
  • Reduce any capital gain tax incurred from the buying or selling of property
  • Secure better asset growth than traditional super funds

Property is a stable and tangible asset and as such often provides a less risky alternative than other common SMSF investment options such as gold or vintage cars.

But just like the many other aspects of creating and running an SMSF, using your SMSF to invest in property comes with a large amount of rules and regulations. That’s why it’s best to work with an expert SMSF advisor to ensure that your chosen investments are the right choice for your particular financial circumstances.

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The Pros and Cons Of Investing In Shares

Shares are an investment option which require much less initial capital to get started. In fact, you even get started using the loose change from your daily transactions via mobile apps such as Raiz. Shares also require much less ongoing management to ensure they continue to bring you a profitable return on investment. This means that they are a realistic option for those interested in creating or expanding their investment portfolio who are also comfortable with the higher level of risk associated with this type of investment.

Pros and Cons of Shares

  • PRO: Shares Can Be Bought and Sold Easily

    As shares are an intangible asset, they offer a lot more flexibility in terms of when you can buy and sell and how much of a particular share you want to do so with. Think of it like this:

    Investing in shares means that you’re always contributing to an ongoing asset, which you can sell a portion of in the case of an emergency without having to sell your entire portfolio. Now if you were invested solely in property, this isn’t possible. You can’t exactly sell off one bathroom in your property in a time of need – but you can sell a portion of your shares. And you can do this simply by consulting with your financial advisor or through your preferred choice of share tracking technology.

    That means that having a share investment portfolio can offer you a safety net for whatever financial hiccups you may encounter in a way that property simply can’t, due to its nature of being a physical asset that takes time to buy and sell.

  • PRO: The Ability To Easily Diversify

    At My Wealth Solutions, we believe that a diversified investment portfolio is a successful investment portfolio. Think of it like this: your assets are eggs and by diversifying you’re placing your eggs in baskets across multiple industries, investment types and even countries. And because your assets are located in more than one basket, they are much better prepared to successfully weather any changes that could negatively impact on one or two specific baskets.

    While ideally your investment portfolio should include a mix of both property and shares, it’s easy to see how much more difficult diversifying solely through property is in comparison to shares. As shares are a liquid asset that can be easily bought or sold, it’s much easier to diversify your eggs by choosing to invest in companies across multiple sectors. Property, on the other hand, is a physical asset that will always be affected by fluctuations in the property market on both a local and national level.

  • CON: The Volatile Market

    It seems that whenever investing in shares is mentioned, a criticism of the volatility of the ever-fluctuating share market quickly follows. Shares are bought and sold every day, which means the differing daily prices of individual shares can be accessed at a moment’s notice. Sometimes this is a pleasant experience, and sometimes it’s not. Share prices rise and fall as a business’ fortune does, in combination with the effects of external factors such as global political and economic shifts, which leads to the view that the share market is a volatile beast that every investor is constantly playing catch-up with. In Australia, this view is also further backed up by the fact there has been no major downturn in the property market in recent memory, while there has been sharemarket dips.

    But while the volatility of the share market is something that new investors should keep in mind, it’s also important to remember that any investing in shares should be done with a long-term investment strategy in mind.

    In the words of Ben Budge, My Wealth Solutions’ Director & Senior Financial Advisor:

    “While it can be disconcerting to see the value of your share portfolio rise and dip on a daily basis, by keeping your long-term investment goals in mind you won’t have to worry about the daily prices as you’re not planning on selling.”

  • CON: A Lack Of Power To Control Their Performance

    With an investment property, you have the option to add value by renovating or completing another form of home improvement which in turns boosts the value of your property. With shares, there is little you can do to affect the value of your investment.

    The price of individual shares is affected by a number of factors, including the management and performance of the company you’ve invested in, as well as external political, economic and social factors on both a local and global scale. As a silent investor, all of these factors are out of your control.

    While this might not sit well with some depending on how comfortable you are with risk or the fluctuations in the share market, the positive side of this is that you don’t have to be actively involved with this type of asset to ensure a profitable return. While you’re losing control over the performance of the asset itself, you’re also gaining an investment portfolio that only requires you to sit back and check in with it every once in a while to ensure it remains on track to meet your financial goals.

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Investing Using Index Funds

Before deciding whether you should invest in index funds, it’s first important to understand what index funds are.

For those looking to invest in shares but whom don’t have a large amount of cash to make an initial investment with, an index fund may provide the right option to get started with.

An index fund is a type of passively managed fund that is focused on buying shares to mirror a certain share market index. An index fund is designed to help you gain exposure to a variety of stocks in a single investment, minus the high fees associated with actively-managed funds. So, for example, the S&P 500 index fund – which you may have heard of – would invest in all 500 components of the market index it was replicating in order to match its performance. Most investment markets will have indexes that measure their value over time, meaning that index funds cover almost every industry and asset class, both in Australian and international markets.

Index funds are built around one philosophy: that investors as a group cannot beat the market, because they are the market. That means that instead of trying to guess which investments will outperform the average in the future, index managers replicate a specific market by investing in all or most of the securities in the index. Index funds then are naturally diversified, due to their nature of being spread across multiple sectors and industries.

The benefits of investing in an index fund include:

  • Lower management fees, since they cut out the need for a highly-paid fund manager
  • The maximisation of diversification and consequently the reduction of risk
  • Lower investments costs and tax as index funds tend to trade less often than actively managed funds

Due to the lower initial and ongoing costs and generally positive market performance, Index Funds are popular amongst new investors looking to get started in the world of shares who don’t have a lot of money available to invest.

In the words of Warren Buffett, one of the most famous investors in the world:

“A very low-cost index is going to beat a majority of the amateur-managed money or professionally managed money.”

Exchange Traded Funds are another option that is recommended for beginner and experienced investors alike who are looking for a stable share investment with proven returns. An Exchange Traded Fund, also known as an ETF, is a type of index fund that chooses to invest in a basket of assets. An ETF, unlike index funds, can be traded easily on the share market as if it were a single share. ETFs are considered to be more flexible and convenient than index funds, but aren’t as suitable for those wanting to invest a small amount regularly as a stockbroking fee is usually charged on each contribution.

Both index funds and ETFs, while you’re still investing in shares, are cheaper to invest in than mutual and actively managed funds and are geared towards helping new investors gain exposure to the investment market without having to invest a large amount of cash.

Want to learn more about investing in an index fund, ETF, or both?

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Timeline for Accessing Your Investment Profits

Investing is an essential part in building and growing your wealth. But like many aspects of a comprehensive, successful financial plan, designing an investment strategy that is right for you will depend entirely on how long you have left to go until you’d like to access the fruits of your investment labour, which is most commonly done in retirement.

For those that have already built some wealth but still have a long time to go until retirement, property could serve as the stable, steadily-growing asset you’ll need to take your investment strategy to the next level.

On the other hand, if you’re just starting out in your investment journey or are approaching retirement and aren’t sure whether you’ll need to access your investment funds in a hurry, shares may be the right option for you due to their flexible nature.

Just like your risk tolerance and investment goals, sitting down and working out exactly how far there is left between your current financial position and where you’d like to be when retiring will help you to decide which investment option is right your particular financial circumstances.

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Property or Shares: The Right Investment Option Is…

It depends on your financial circumstances!

As investment assets, both property and shares have their positives and downsides. While a successful portfolio should combine both property and shares, deciding on which one is the right investment type for you will depend entirely on your investment goals, your risk tolerance and how much longer you have to go to retirement.

In other words: the right investment strategy for you should be built around your personal financial circumstances and short, medium and long-term goals.

Which is where your expert investment advisor comes in.

If you want to know whether shares or property is the right investment option for you, we can help you decide.

But first you have to tell us more about your personal financial situation and investment goals.

Need clarity and direction in your investment decisions?

Our team of experienced investment advisors are here to help, every step of the way.

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