Property vs Shares
One of the most common question people ask their financial advisor is whether it is better to invest into property or shares. In reality there is no “better” choice but instead advantages and disadvantages to investing in both.
Property’s first advantage is the fact that it’s able to produce notable capital gains whilst not being subject to substantial volatility in terms of asset value. Property can also be negatively geared which reduces the financial risk of property investment. Furthermore Property has an advantage in the fact that it can be a stable source of passive income if you elect to rent the property. This is particularly true for properties within the greater Sydney and Melbourne region where vacancy rates are low and rental returns high.
However there are negatives associated with property investment primarily the significant costs linked to the purchase and sale of property which is generally 5-7% of the property’s total value. Secondly property investment has a high barrier to entry due to its high cost which almost necessitates you to take on additional debt in order to invest in property.
The first advantage of shares is in the fact that they are a more diverse investment in the sense that you are able to invest in low risk blue chip stocks that can pay dividends of over 7% p.a and largely retain their value or high risk growth stocks that can realistically appreciate/depreciate 100-200% over a 1-2 year period. Stocks also have a high liquidity meaning they can be converted to cash easily and a low barrier to entry seeing as you can generally being trading with any amount over $1000.
However there are disadvantages to shares including the fact that it is significantly more volatile than property investment. This creates the second disadvantage to shares in the fact that it requires a financial planner or someone with knowledge in shares to build a profitable portfolio. Shares also add more complexity to tax returns and create additional book keeping.