While the stock market has traditionally been considered the primary way to build wealth, many now also look to property investing. If you’re tossing up between property or shares, you should know that each option has its own risks and rewards. 

Your decision to invest in property or shares may be based on personal circumstances and preferences, risk tolerance or stage of life – and what works for one individual or family may not be the ideal choice for another. 

Whether new to financial planning or honing your retirement strategy, understanding each option can give you the clarity to make a smart financial decision. 

Understanding Share Investing

Many investors have traditionally looked to the stock market to start investing. It’s fairly easy to start, with little upfront costs, so it often appeals to first-time investors.

As an investor, you can buy and sell shares of publicly listed companies on the Australian Stock Exchange or an international stock market. While a company will offer a small number of primary stocks when it is first listed, typically, you will buy and sell from other investors in a secondary market.

When you purchase stocks, what you are really buying is a very small slice of a company. Buy stocks of multiple companies, and you create a portfolio.

As a shareholder, you may then build wealth in two ways: either through capital gain (when the value of stocks increases as a company performs well) or through dividends (when a company pays its shareholders). Shareholders receive a company’s annual report and are welcome to attend general meetings and vote on company resolutions. 

About Property Investing

Purchase an investment property and what you are acquiring is a tangible asset, solely owned by you and/or the bank when leveraged (where you borrow to buy). In most cases, you will need significant upfront costs, including a deposit, stamp duty, land tax and GST if buying a newly built home.  

Property investors often value the physicality and predictability of property over shares. While stock markets are constantly in a state of flux, property tends upwards with consistent growth as property prices rise. Rent can also provide a steady income stream to offset the mortgage and other operating costs. 

Additionally, real estate may be leveraged to purchase a second property or another asset, where an investor’s financial situation is appropriate.

Risks and Returns

Shares provide liquidity and diversification. It is relatively easy to buy and sell shares quickly, and you can build a diversified portfolio by accruing stock in a broad variety of companies. Shareholders may also be eligible for franking credits, where a company pays a portion of dividend tax on your behalf.

Historically, shares have outperformed property, delivering stronger returns. Shares are also subject to market volatility, however. The cyclical nature of finaFncial markets means a crash or swing can see the value of your stock plummet, before potential recovery. As such, share investing requires calm and patience even through market turmoil. 

Real estate capital growth is typically more stable than shares. While the upfront costs can be high, many investors appreciate the capacity to leverage the property, and tax benefits such as depreciation. When calculating potential returns, you do need to consider ongoing costs such as maintenance, land rates and real estate fees. Property may also not be as liquid as shares. In some cases, you may need to adjust your anticipated price if you need to sell very quickly. 

What Level of Involvement is Required?

While it is possible to buy and sell shares directly on the market, most investors will seek advice from a financial planner. 

At Newealth, we work with specialist stock market portfolio managers to make tailored recommendations for every client’s portfolio. Our clients may also do their own research to build a better awareness of the share market and investment options.

Buying a property may need more hands-on involvement in terms of maintenance and management; however, many investors do appreciate that level of control and the tangibility that comes with owning a property.

Choosing an Investment Strategy

Both shares and property investing have the potential to build sustainable wealth. While first-time investors often look to the stock market, property may be a good option for those in a more stable financial position.

In considering where to invest, you should think about your life stage, financial situation and long-term goals. There is no single best option and a diversified investment strategy that includes both property and shares may provide an ideal balance.

Interested in seeing how different investment strategies might fit in your long-term plan? We’re here to help. 

General Advice Warning:

The information in this blog is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider whether the information is appropriate for you and seek professional advice before making any financial decisions.
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