investing in property or shares

Diversification is crucial in any investment, as is the timing of when you enter the market. Shares and property are two of the most popular investment avenues for many Australians, but is one better than the other?

The question does not have a straightforward answer — if you are thinking of investing, there are several factors to consider, including how much you are willing to invest, your risk profile, and your goals for your investment.

Breakdown: Major difference between shares and residential property

Shares and residential property as investments differ in many aspects and require entirely different strategies. If you are going the DIY route, each investment vehicle will also require you to develop or have specific skill sets to succeed.

The table below breaks down the major difference between shares and residential property based on the following aspect:

Aspect

Residential Property

Shares

Potential Return

Capital appreciation and rental income.

Capital appreciation and dividends.

Risk

Price fluctuations, economic conditions, and tenant vacancies.

Market volatility and industry- or company-specific risks.

Liquidity

Relatively illiquid, as takes time to sell and access funds.

Highly liquid — it is easier and quicker to buy and sell shares.

Diversification

Limited diversification options and is usually location dependent.

Opportunity for diversification across industries and regions.

Costs

Upfront costs, including purchase fees and stamp duty

Lower transaction costs. Fees include brokerage fees and trading costs.

Control and Management

Direct control over property decisions and management.

Limited control, management by company executives.

Tax Considerations

Taxable rental income, deductions for expenses, CGT on sale.

Tax on dividends, CGT on share sales.

Emotional Impact

Could have lower emotional impact, as property values tend to be stable.

The volatility or the shares market could evoke emotional responses.

Investing in shares — who is it for?

The shares market is for investors who are seeking not just growth but also diversification and ease of liquidity. If you find yourself in any of these categories, shares might be the right investment vehicle for you:

  • Long-term investors – Shares investors thrive in a long-term setting; they know that the stock can experience short-term volatility. They are willing to hold their investments for an extended period, typically five years or more.

  • Growth-Oriented Investors — Investors who are willing to take on a certain level of risk may find shares attractive. They aim to benefit from the growth potential of companies and industries, aiming for higher returns compared to more conservative investment options.

  • Active Traders — Stock market investors enjoy monitoring the market, conducting research, and making strategic trades. Even day traders, swing traders, and those engaging in short-term strategies may find shares a suitable investment avenue due to the liquidity and potential for short-term price fluctuations.

  • Portfolio diversifiers — The stock market is the perfect playground for investors looking to diversify and reduce risks. By adding shares to their investment mix, they can achieve broader exposure to different industries, sectors, and geographic regions, thus spreading risk across various assets.

Things to consider when investing in shares

The Australian stock market offers a diverse range of investment opportunities, allowing investors to build a well-diversified portfolio. However, it is crucial for you to conduct thorough research, assess their risk tolerance, and seek professional advice before making any investment decisions.

By understanding the market, investing with a long-term perspective, and staying informed, you can potentially unlock the growth potential and financial rewards that shares offer.

Advantages of investing in shares

Here are some advantages to consider when investing in the stock market:

  • Potential for capital growth – Shares offer the potential for capital appreciation, especially in well-performing companies or sectors.

  • Dividend income – Some shares provide regular dividend payments, allowing you to receive a portion of the company's profits.

  • Diversification – Investing in shares allows for easy diversification across industries, sectors, and geographic regions.

  • Liquidity – Shares are highly liquid investments, enabling you to buy and sell quickly and access funds when needed.

  • Access to professional management –  You can benefit from the expertise of professional fund managers and research analysts in the stock market.

Disadvantages of investing in shares

The stock market carries a certain level of risk. Here are some disadvantages to look out for when you decide to invest in shares:

  • Market volatility – Share prices can be volatile, and investors may experience significant short-term fluctuations.

  • Company-specific risks – Individual companies that you invest on may face specific risks, such as management issues, competition, or changes in industry dynamics, which could affect their stock performance.

  • Limited control – Shareholders have limited control over company decisions, as management and corporate governance are in the hands of others.

  • Potential loss of capital – Investing in shares involves the risk of losing some or all the invested capital if a company performs poorly or fails.

Invest in a Property – who is it for?

The property market can be suitable for investors who want more certainty. Here are some type of investors who may find property investing an attractive asset:

  • Long-term investors — Investing is a long-term game and like shares, properties tend to appreciate over time. If you are willing to hold a property for an extended period, then it may be the right asset for you to invest in.

  • Risk-Averse Investors — Compared to other investment options, property investment is generally considered less volatile. It can appeal to investors who have a lower risk tolerance and prefer tangible assets that tend to be more stable over time. Property values typically experience slower and steadier price movements compared to the stock market.

  • Hands-On Investors: Property investment can be appealing to individuals who enjoy being actively involved in managing their investments. They may take pleasure in researching potential properties, negotiating deals, handling tenant relationships, and overseeing property maintenance and improvements.

  • Investors keen on tax planning – Property investment offers certain tax advantages that can make it appealing to investors focused on tax planning. For example, investors may be eligible for tax deductions on mortgage interest, property management fees, repairs, and depreciation.

Things to consider when investing in property

Property is one of the most lucrative and relatively safest forms of investment in Australia due to the stability of the market and certainty in cycles. However, you will need a long-term view when you decide to invest in property and consider factors such as market conditions, property location, financing options, and ongoing maintenance costs.

Also read: A guide to buying your first investment property

Advantages of investing in property

If you think property investing is the right track, here are the best benefits it could provide you:

  • Capital growth – Property investments have the potential for long-term capital appreciation, especially in high-demand areas or during periods of growth.

  • Steady income – Properties can generate consistent rental income, providing a steady cash flow stream.

  • Tangible asset – When you invest in property, you own a physical asset, providing a sense of security and control over the investment.

  • Potential tax benefits – You may benefit from tax deductions on expenses such as mortgage interest, property management fees, and depreciation.

Disadvantages of investing in property

While the property market offers vast growth opportunities, there are still drawbacks that would make you think twice if this route is the right one for you. Here are some of the disadvantages you must keep in mind:

  • High entry cost – Property investment often involves substantial upfront costs, including purchase fees, stamp duty, and legal expenses.

  • Illiquidity – Properties are relatively illiquid assets and may take time to sell, limiting access to immediate capital.

  • Property Management – While this could be an advantage to some, you must understand that this type of investment requires active management. This includes tenant screening, property maintenance, and dealing with vacancies.

To further understand the pros and cons of investing in a property, read this blog: The pros and cons of buying an investment property

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Photo by Jittawit21 on Canva.

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LenderHome LoanInterest Rate Comparison Rate* Monthly Repayment Repayment type Rate Type Offset Redraw Ongoing Fees Upfront Fees LVR Lump Sum Repayment Additional Repayments Split Loan Option TagsFeaturesLinkCompare
6.19% p.a.
6.58% p.a.
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Variable
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7.60% p.a.
$2,408
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Fixed
$0
$180
85%
5.94% p.a.
6.58% p.a.
$2,383
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Fixed
$10
$150
80%
6.14% p.a.
6.49% p.a.
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Variable
$395
$0
60%
6.22% p.a.
6.37% p.a.
$2,455
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Variable
$10
$250
90%
Important Information and Comparison Rate Warning

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of .

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