Meanwhile property prices have continued to move up through the course of the year. According to figures from Australian Property Monitors (APM), Australian house prices have risen 7.1 per cent up to September this year.
So given this information are you better investing in shares or property? It’s probably not so much a question of which is better but which suits your needs at any given time. And in a diversified investment portfolio, you should probably have both anyway!
Even though shares and property are both frequently lumped together as growth assets, each asset has distinctly different characteristics.
With shares, for instance, you can get away with only a modest outlay and you can buy and sell relatively quickly. Those are the pluses. But shares can be very volatile as was witnessed when the market slumped.
In contrast, property requires a larger outlay and buying and selling can take several months. But at least the market tends to be less volatile.
Matthew Bell, economist at APM says the global financial crisis has brought people back to reality and forced them not only to think about the long-term return of an asset class but also the risk.
“While equities may have a higher long-term return, they also have a much higher risk than an investment in property,” says Bell. “Anyone with the majority of their wealth tied up in housing over the last few years will be in a much better situation than someone who had most of their wealth in the stockmarket.
“Investors need to consider not just returns but risk (volatility) also. In a risk-adjusted sense, property stacks up very well against other asset classes including equities and we only need to look to the last few years to see the cost of not considering risk when investing. An optimally diversified portfolio would include both equities and property.”
John Lindeman, head of research at Residex, says shares can suit a start-up investor who is looking to generate enough capital to buy into property.
Another key difference between shares and property is that property allows you to value add to your investment.
“If you have property you can improve it yourself,’ says Lindeman. “You can’t paint the front of an ANZ bank building and have that increase the share price. But you can renovate a property and increase its value.”
Both shares and property offer diversification opportunities. With shares, for instance, you can choose whether you want a mining or an industrial stock – or even a property trust. You might choose to have a stock that has the potential for capital growth or one that pays dividends.
In much the same way you can choose a property in a regional area which costs less, has lower potential for capital growth than a city dwelling but delivers good healthy yields in the form of rentals. Alternatively if you want capital growth over income – traditionally suited to younger rather than older investors – then you can buy a property in a city which should increase in value more rapidly than a regional centre.
It is often suggested that shares are a short-term investment opportunity while property is for the long term. But given the recent fluctuations on the sharemarket, investors should really be viewing shares as a long-term investor too. That way you will have the chance for your share investments to recover should they take another hammering like we have experienced in recent times.
Both shares and property offer opportunities for the investor. And in an ideal world both should play a part in your investment portfolio.
- Consider risks as well as returns
- Property is less volatile than shares
- Property and shares should both be long-term investments
- A good diversified portfolio features both shares and property.