Are shares or properties the better investment?

Investing can be daunting. If your life savings are sitting safe in a bank account, you might be apprehensive to risk the spoils of your industriousness in an investment that could lose value.

While an understandable hang up, it's important to remember the risk of missing out by not investing. Buying an investment property or investing in equities - like shares, which represent partial ownership of a company - can result in major returns over the long term, and being well informed can minimise the risk of realising a loss.

Here's how shares and property stack up against one another as investment vehicles:

How many Australians invest in shares vs property?

Shares and property are the two most popular investments among Australians

Nearly 60% of Australian investors hold Australian shares, while 20% invest in exchange traded funds (ETFs), and 16% own international shares, according to the 2023 ASX Australian Investor Study. Residential property is the second most common investment, held by 35% of investors, with one in 10 holding other forms of investment properties.

As of June '2024, Australian households owned around $1.483 trillion in shares and other equity - about $69,000 per adult - according to the Australian Bureau of Statistics (ABS). That's slightly less than hold in currency and deposits ($1.718 trillion, or $80,000 per adult), but significantly more than any other financial asset - the aggregate of which adds up to just $434 billion ($21,000 per person).

Estimating the total value of investment properties is less clear cut. But if we take the value of land and dwellings owned by Aussie households at the time ($11.216 trillion) and the inverse of the most recent home ownership estimate (about 66%, assumably meaning roughly 34% live in an investment property), that suggests around $3.8 trillion worth of property is held for investment purposes.

Here are some of the top reasons both investment options can be attractive choices:

Capital gains

The main reason to invest in either shares or property is usually growth potential.

How have Australian shares performed historically?

If you look at the ASX All Ordinaries Index - a composite index of the 500 biggest companies in Australia - you can see the general upward trend for Australian stocks. Though, stocks' values do fall sometimes (you've probably heard at least one horror story).

The All Ordinaries Index closed 1982 (amidst a recession) at under 500 points. At its all time high, around February 2025, the index was at 8,800 points. That sees it boasting nearly 1,700% growth - a $1,000 investment in 1982 would be worth almost $17,000 today. The index represents the market as a whole too - getting in early on a single, top-performing stock like Nvidia or Apple could mean orders of magnitude greater returns. Importantly, returns are far from guaranteed and past performance isn't an indicator of future performance.

How have Australian property values performed historically?

As for property, existing coverage on how much property prices have increased in Australia over the past few decades is more than exhaustive. According to the RBA, the average dwelling price in an Australian capital city was about $80,000 in February 1980 - that figure recently hit $900,000, marking growth of more than 1,000%

Income potential

Both shares and property can also generate regular income. However, in both cases, income isn't guaranteed - but when it flows, it can significantly boost your return on investment

Shares can provide dividends

Listed companies sometimes give a portion of their profits back to shareholders, and when they do it's called a dividend. These distributions are proportional to a shareholder's stake in the company and are sometimes 'franked', meaning they can also give you a tax credit. There's no obligation for a company to pay dividends, but doing so is a way to attract more investment. Experienced investors sometimes make a distinction between dividend-paying stocks and 'growth stocks' - companies that have the potential to expand rapidly are likely to reinvest the lion's share of profits, meaning no dividends.

Investment properties can garner rental income

Property investors also can earn a regular income from rent paid by tenants. This may or may not cover the expenses borne from owning a rental property - like interest, maintenance costs, and the like. If the property earns more than it costs, it's considered 'positively geared' while if you're losing more than you're making you're 'negatively geared'. In Australia, losses from negatively geared properties can be deducted from an investor's other taxable income, which can make property investing more attractive.

Advantages of investing in shares over property

There are several inherent advantages to choosing shares over property:

It's easier to diversify investments in shares

It's a lot easier to diversify your portfolio and spread your exposure when investing in the share market compared to in property.

Diversification is one of the most important principles in investing. While any individual share or property can lose value, broader markets tend to grow over the long term. By diversifying, investors can reduce the risk of significant losses, as a single underperforming investment is less likely to drag down the entire portfolio.

If you invest in equities you can spread your investment across several different companies or sectors. Investing in ETFs or index funds is an easy way to have a stake in a range of different companies.

When you buy an investment property, on the other hand, you might find yourself banking on a single asset to perform, which can be a riskier approach.

Shares have a lower barrier to entry

As Tiger Brokers chief strategy officer Greg Boland told InfoChoice Group, you can invest in equities with a far smaller starting point than property.

"[For] property, you've got to come up with a 20% deposit, and say its on a $500,000 property, that's still a fair chunk of change … getting to $100,000 is quite difficult for younger people," Mr Boland said.

"Shares, you can invest as little as $1 and be on that investment journey straight away."

Shares offer more liquidity

Mr Boland said the biggest benefit of investing in equities over property is liquidity - the ability to quickly turn your investment into cash.

"Selling a house might take a month or two, whereas selling shares is [almost] instant," he said.

"Trading apps have commiditised the whole process and made it a lot more efficient."

Advantages of investing in property over shares

At the same time, there are also good reasons why property investing is so prolific in Australia.

It's far easier to leverage property purchases

One of the biggest reasons to choose property over shares is that it's typically much easier to borrow money to increase the size of your investment.

When you buy a rental property, you'll typically only need to front a deposit - often worth around 20% of the asking price. The rest you can finance with an investment loan. That means, from the same starting point, you can make your capital gains on a much larger investment.

For example, let's say you've got $50,000 saved. You could invest that on the share market and realise, say, a 10% return - equaling $5,000. Or you could borrow another $450,000, using your $50,000 as a deposit, and purchase a $500,000 house. A 10% return on that investment would equal $50,000. Even if your property doesn't perform as well as the shares, you'd be getting nine times the returns. Again, it's important to note that no investment is guaranteed to provide returns and losses can be substantial.

Borrowing to invest in shares is a thing, known as a margin loan, but these are increasingly less common and rates offered are typically significantly higher than those on investment home loans.

Greater guaranteed demand for property

Joseph Daoud, economist and founder of It's Simple Finance, told InfoChoice Group property is a safer investment than shares because demand is more guaranteed.

"Government has already created an appreciating asset, that's a sure thing, as immigration is far exceeding [availability on] the property market," he explained.

"Whilst barriers to entry are higher for property, the demand far outweighs the supply and it's a tangible asset that is finite in Australia."

Photo by Jittawit21 on Canva.

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