Shares vs Property: the pros and cons breakdown

NRL vs AFL. Neighbours vs Home & Away. Gas vs charcoal grill. We Aussies are no strangers to a heated debate. And that extends to the shares vs property discussion.

You’ve probably seen it unfold at the family BBQ before.

Uncle Mick will swear black and blue that property is the only way to go, as he bought his $1 million beachside shack for just $20,000 thirty years ago.

He’s immediately countered by your know-it-all second cousin James. His hand-picked share portfolio has outperformed the property market five years running, he claims, as he casually reels off lingo such as “bullish” and “bearish”.

But as with most things in life, the best option depends on your individual situation, so let’s run through the five major pros and cons of each.

Shares: PROS

  • Regular income from dividends, which tend to grow with CPI, and can pay 6%-7%.
  • Easily bought and sold on the market for a low cost.
  • Easy to diversify portfolio, providing exposure to many different companies.
  • Little hassle after initial investment, which can be as little as $500.
  • No leverage means you can’t lose more than you invested.

Shares: CONS

  • Can be volatile and are exposed to stock market crashes.
  • They’re not a physical asset.
  • You can’t leverage them during periods of high growth.
  • You usually have to pay capital gains tax when shares are sold.
  • You have no control over the day-to-day operations of the company you invest in.

Property: PROS

  • Many investors like the tangibility of having a property and/or a stable place to live.
  • You can use borrowed funds to invest and leverage returns, which is handy during periods of low interest rates.
  • You’re able to renovate to add value to your asset.
  • There’s the potential for negative gearing.
  • Lack of correlation with other asset classes.

Property: CONS

  • Worries include bad tenants, rental vacancies, interest rate rises, as well as costs for real estate agent, body corporate, land tax, and maintenance.
  • May limit diversification as a large chunk of your money is tied to a single asset.
  • Leveraging magnifies losses, so you can lose more than you invested.
  • High transaction costs associated with buying and selling, which typically takes months to conduct.
  • The entry point for investment is high: it includes your deposit plus taxes and stamp duty. You may also need to borrow a significant amount which could leave you with negative equity if the property drops in value.

Final word

As you can see, what might be a major sticking point for your uncle, could be water off a duck’s back for your second cousin. And vice-versa.

So rather than getting drawn into a pointless debate and being forced to pick a side, come in and chat to us for unbiased advice on what would best suit your individual situation.

Besides, someone’s got to keep an eye on those lamb snags (which are clearly superior to beef snags).

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

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