Investors usually sit in between two camps - either you're gung ho about investing in shares or you'll rather place your eggs into the property basket. Those that love shares will highlight the liquidity, tax-friendless, diversification and lack of maintenance. Whereas property enthusiasts will emphasize the simplicity of owning a bricks and mortar investment that you can touch, feel and assess and the historical lack of price volatility.
However, with the inherent higher risks of shares and the ever increasing rate of property prices, it may seem that the choices between the camps is a catch-22 whichever way you look at it. Therefore, for the ever assertive investor, how is one to choose which option is more viable and which one should you choose as your first investment?
Aussies have long been seen as being fans of "bricks and mortar". The fact that the investment is tangible gives investors a real sense of comfort. Moreover, property tends to offer a good rate of return when held over the long term.
Whilst reports indicate that Australian shares outperformed residential property over the past 10 years, with a 9.2% return; residential investment property trumped shares over the past 20 year period with a return of 9.9%. This indicates that property is truly a long-term investment and is well suited to those that can patiently wait for a solid, low-risk return.
The biggest challenge for property usually lies in the high entry cost. In addition to the tens of thousands of dollars needed for a deposit, you will also need to have additional funds to cover off stamp duty plus other fees including conveyancing, insurance and more.
Given the time frame needed to obtain a good return on property investment (at least a decade, if not more) if you are close to retiring then property investment may not be the best option to consider. Simply because the liquidity in the property will not exist. In retirement while you might want to hold some property, you do need a fair bit of liquidity as often people will need to draw down on their portfolio to live on.
There may be the potential for investors to make money in the short term through improvements and renovations but you will need to be very knowledgeable to pull this off successfully so a first time investor may also not see this as a viable route.
In regards to liquidity (the power of buying and selling assets when you want to) blue chip shares listed in large companies are probably your best option. These types of shares are also relatively easy to get started with and you can start off with a small amount as opposed to the thousands of dollars required for a property purchase.
The other benefit share lovers will attest to is the fact that you are not locked into one great big asset. If you do need liquidity either to cover an expense or to use for another investment opportunity, then you are able to easily sell part or all of your share holdings.
Shares also carry with them the added benefit of diversification. While say $300,000 may allow you to purchase a number of parcels listed on the stock exchange, you will probably be confined to just property for that amount.
The obvious downside to shares is of course market volatility over the short term and just like property, you need to be knowledgeable if you intend to trade over a shorter time frame. Like property, shares should been seen as a long term investment.
There are of course options for those investors who simply can not choose between shares or property or who would like to have their cake and eat it too. A broad range of investment options exist that incorporate both shares and property. Shares like Westfield Corporation (ASX: WFD) provide investors with a company that gets the most of their stability from real estate assets. BWP Trust (ASX: BWP) is another example of a retail company that comprises mostly of the large green Bunnings Warehouses that are scattered across Australia. The continued strength of this retail chain puts this investment option as one of the top among Aussie shares for equity investors looking for property exposure.
There are many other companies that are listed on the stock exchange that hold property as their main assets and the ones listed above are not meant to be taken as an indication of what one should invest in but merely a guide as to what is available out there.
Whilst shares and property both have their benefits and downsides, the best way to figure out what's best for your situation is to talk to one of our expert accountants or independent financial adviser on 02 9299 7044.