Are shares better than property? The answer is harder than you think

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Q: Should I invest in shares or property? I’ve been saving up, and I want to start putting my money to work. I don’t have much knowledge about either shares or property. On one hand, I’ve heard shares are risky, on the other hand, the sharemarket feels more within reach given how high property prices are. I’m uncertain whether I should invest my money in shares, or keep saving up with a view to buy a property.

Many people think that the answer to this question is a more technical one. Which asset class is “better”, or will get you a better return?

It’s a mistake to think that the most important factor when selecting an investment product or strategy is which will make you the most money.Credit: Simon Letch

But that’s actually not the predominant consideration. There are successful real estate investors and successful stockmarket investors. You can be successful in either asset class. So, this isn’t just about what you invest in, it’s also about how you invest.

Within each asset class (shares vs property), there are not only different products, there are different strategies for how to make money using those products.

For example, when you talk about investing in the sharemarket, are you talking about picking stocks (selecting shares of a specific company), or buying into an index fund that gives you exposure to a large section of the market?

When you talk about investing in property, are you talking about buying and holding a property to rent out, homeownership, or flipping property (buying, renovating and selling for a profit)?

There are many options within each asset class. This is why it can be misleading when people claim their asset class of choice is the best investment. It’s not just the asset that contributed to the success but also their chosen strategy.

For example, someone could get good at flipping houses, but that doesn’t mean that someone who buys and holds property will have the same success (or vice versa).

How you invest will also impact the risk profile of your investments.

Although shares are generally considered higher risk, that doesn’t mean all sharemarket investments are always riskier than all property investments. There are many factors that impact risk, not just the specific asset.

For instance, an index fund gives you the benefit of diversification. In comparison, buying a property puts your money into a single undiversified asset, and also requires you to take out a loan which adds risk (as many people are realising with increasing interest rates).

So, there isn’t one single categorically “better” choice. It comes down to which option is better suited to you, based on your circumstances and goals.

Here are some questions to better assess which option might be better for you:

How stable is your income for the foreseeable future? With property, a key consideration is your ability to service that mortgage. So, if you aren’t sure if you’ll have a stable source of income for the next few years (e.g. you want to quit your job to travel, go back to study, start a business), would you be able to continue paying a mortgage without the income?

How actively involved do you want to be in the investment process? Investing does take work. Some investment products and strategies are more time-consuming than others. Investing in property or picking stocks can be a lengthy and involved process. In contrast, index funds or ETFs can be simpler and quicker.

It’s a mistake to think that the most important factor when selecting an investment product or strategy is which will make you the most money.

There’s no point trying to invest in something that feels so choresome that it inspires dread, anxiety and procrastination.

What is your attitude to market fluctuations? There can be a psychological advantage to investing in property. This is because, in our society, property has a lot of value and acceptance. It’s more normal, celebrated, and familiar (and therefore feels safer).

Also, unlike shares, we don’t have access to constant market data on every property. You can’t panic over dips in the market if you don’t even know there’s been a dip. In contrast, people do panic over their sharemarket investments. They can get obsessive, checking their account every day, worrying about backward movements.

So, be honest with yourself. Will you be okay if your investment account dips?

You’ll notice these questions weren’t really about the investment.

It’s a mistake to think that the most important factor when selecting an investment product or strategy is which will make you the most money.

In some senses, it’s not the investment that makes you money. It’s you, the investor. Your decisions, your due diligence, your management of your portfolio etc.

You play a pivotal role in the success of an investment. So, designing an investment strategy that aligns with your personal preferences, goals and circumstances is key to investing success.

Paridhi Jain is the founder of SkilledSmart, which helps adults learn to manage, save and invest their money through financial education courses and classes.

  • Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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