The time has come: you’re ready to begin growing your wealth and now you have to decide whether you should invest in a concrete asset like property or embrace the flexibility of shares.
Sound familiar? Don’t worry, we’re here to help.
That’s exactly why we created this guide on the pros and cons of investing in property versus investing in shares, in order to give you a better understanding of which option may be right for you.
Investing In Property
Property remains a popular investment option amongst everyday families for a very good reason. It provides a concrete, tangible asset and can serve as the base for a number of wealth creation strategies that may be useful for you in the future.
But investing in property, particularly in a post-COVID property market, can come with its own unique set of benefits and challenges.
Pros
One of the main pros of investing in property is the doors it opens to other wealth creation strategies, such as debt recycling. Debt recycling involves utilising the debt owing on your investment property to lower your tax obligations while helping you to pay off both your investment property and your home quicker. This strategy is particularly useful for those of you earning a higher-than-average income who may be looking to lower the amount of tax you are obligated to pay.
Property in Australia has also historically performed very well in terms of return on investment, both in the growth of property prices and rental yields. This means that an investment property may provide you with a regular stream of income that could steadily grow in returns.
Cons
Since a property is a physical asset, one of the downsides of investing in property is that it doesn’t give you much liquidity in your investment portfolio if you ever need to sell a portion in a hurry. After all, you can’t auction off just a bathroom in your investment property, but you can sell a section of your share portfolio without having to sell the whole thing.
Similarly, investing in property as your only investment option ties you into one type of asset, which can be dangerous if you ever were to experience a fall in the property market. Diversity is key when it comes to building a stable investment portfolio, something that property alone isn’t likely to provide you with.
Finally, purchasing an investment property requires a substantial amount of savings – or equity built up in your home – to break into the market in the first place. This means that purchasing a property is a larger upfront commitment than shares, as well as being an asset that will require a hands-on approach to ensuring it remains in a condition that will provide you with the rental yields you would like.
Investing In Shares
The topic of investing in shares is a hot one right now as every person and their dog seems to know the secret to becoming a millionaire trading stocks. But while investing in shares can form the cornerstone of any successful wealth creation plan for a very good reason, there are still some things to consider before deciding on whether this investment option is right for you.
Pros
Investing in shares is an excellent option for those of you who may be interested in dipping your toes into investing without having to commit to the large entry fees that investing in property may require. In fact, getting started investing in shares has never been easier than with the number of investment apps and exchange-traded funds (or ETFs) currently available.
When correctly diversified and invested for the long-term, shares can also provide you with a secondary income in the form of dividends. With the help of your financial advice team, the money generated from these dividends can then be reinvested in the share market in order to help your portfolio – and your wealth – continue to grow.
Finally, shares are a much more liquid investment asset than property and can easily be sold in the case of a financial emergency. While a long-term investment plan, tailored to your unique needs and financial circumstances, should help you confidently weather any fluctuations in the investment market, this liquidity can provide peace-of-mind when it comes to the versatility of your investment portfolio.
Cons
One of the biggest cons of investing in shares, and the one you are most likely to encounter when doing research into shares as an investment option, is the apparent volatility of the share market. We’ve all seen the headlines in the media highlighting how the stock market is perpetually on its way to experiencing the worst fall in the past 10, 20 or even 50 years.
But what these news reports don’t cover is the strategies that are available to help you negate the effects of any share market fluctuations on your own portfolio. Your financial advisor can help you to understand these strategies, such as ensuring your portfolio is correctly diversified, and make sure you’re not engaging in any investor behaviour that may be detrimental to your wealth creation plan.
Still not sure whether buying a property or investing in shares is the right option for you?
We’d recommend getting in touch with a professional investment advisor, who can not only help you assess the viability of each option in relation to your particular financial circumstances and goals but can also help you get started on your investment journey.
Go on, what are you waiting for.