Property VS Shares: Long-Term Investment Options
It’s commonplace to see potential investors unsure about which investment option will deliver the highest return on investment. Taking the first step to building a financial portfolio is daunting because there are so many options available to investors. Information overload makes it tough to ascertain which option will be most lucrative.
We encourage our readers to give investment options some thought. When you’re ready to invest your hard-earned cash, you’re prepared and informed about the risks and availability of potential gains.
In this post, we discuss the benefits and detriments of both investment property and the financial markets. These two investment arenas are the most common options preferred by our clients, with potential long-term return on investment available in both markets. We encourage you to give both options some thought if you’re considering building an investment portfolio to improve your wealth creation prospects.
What is an Investment Property?
An investment property is a property that is not lived in by the owner, but is instead purchased for the purpose of renting out and benefiting from the increased value it can achieve over time. The longer the property is held, the greater the potential growth the owner can achieve. For investment properties that are held debt-free, the rent charged can supplement the investor’s income. Where a mortgage is held for said investment property, the rent is used to help service the loan, in addition there are tax incentives in owning a property where the outgoings are greater the the income. Others like to ‘get their hands dirty’ by renovating and selling the property for a greater price (also known as ‘flipping’). Renovations not only increase the overall value of the home, it can also justify higher rents.
It’s not all a bed of roses however. The negative elements of investment real estate can include mortgage repayments that are difficult to cover with the rent alone. Brand new properties offer the best tax incentives whilst older properties not only limit these benefits, but can also become a money pit due to ongoing maintenance and repairs. If the property is not occupied for a period of time by a tenant, it can have a significant impact on cashflow. Finally, any potential growth (increase in value) gained by a property is governed more by location than the property itself. If an investment is made in the wrong area or postcode, not only will the expected growth not be realised, in some cases the property can actually go down in value.
How Does The Share Market Work?
Publicly listed companies allow individuals to invest in shares of the company using a broker, financial planner, fund manager or an online broking service. Trades are facilitated through the Australian Securities Exchanges. When the value of a company rises as profits increase, dividends are paid out to the owners of shares on a per-share basis. Different levels of risk offer different returns based on supply and demand.
Brokers and some fund managers make recommendations about when to buy shares to when to sell. You can advise them what companies you wish to buy and sell too. Brokerage fees are calculated as a percentage of the total value of the trade, however some fund managers may charge a flat service fee. Traders will usually pay a set fee for smaller trades and a percentage for larger trades.
The stock market can offer both short-term gains and long-term gains. Short term investment can be negatively impacted by market crashes, whereas long-term investments tend to stay steady, despite market crashes. It’s estimated that a $100 investment in 1900 would be worth close to $100,000 today. This is despite the Great Depression of the 1930s, the Tech Wreck of 2000 and the Global Financial Crisis of 2008.
Shares VS Property: Which Investment Offers A Better ROI?
Over the past twenty years in Australia, the property market has offered higher returns than the share market. Share market portfolios have offered an average return on investment of 8.8% p.a. while the Australian property market has offered returns of 10.2%. In saying this, during this period of time, the property market has gone through a boom and the global financial crisis saw stock markets suffering. The property market requires higher capital to invest, so it’s important to remember that this option is not affordable for everyone.
Most investors will mitigate their risks through diversification that includes both property and share markets.
If you’re looking to grow your financial portfolio, contact Pillar Financial for a confidential discussion about your finances. We have helped hundreds of clients earn a strong return on investment on their financial portfolio. We encourage you to think about the exciting potential to invest your money and grow your income. Call us today on 1300 730 309 to discuss your options.
The information provided herewith is general only and not intended as financial or investment advice and should not be construed or relied on as such. Before making any commitment of a financial nature you should seek advice from a qualified and registered financial or investment adviser.
