It’s the eternal 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.
- A guide to defining your investment goals and risk tolerance
- An overview of the benefits and downsides of property as an investment
- A breakdown of the pros and cons of investing in shares
- Advice on how to define your timeline to accessing your investment profits
- How to determine which investment option is right for you and your needs
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?