Should I Invest In Shares, Property Or A Blend Of Both?

In the world of investment, the age-old debate continues: Should you invest in the share market, the property market, or is a combination of both the key to building wealth? It's a question that has intrigued investors for generations, and there's no one-size-fits-all answer. Each market has its merits, risks, and unique characteristics. In this article, we'll explore the pros and cons of investing in the share market, the property market, and the potential benefits of diversifying across both asset classes, with a focus on the Australian property market, supported by statistical references.

Investing in the Share Market:

The share market, also known as the stock market, offers investors an opportunity to own a piece of publicly traded companies. Here are some key points to consider, supported by statistics:

Pros:

1. Liquidity and Accessibility: Shares are highly liquid, allowing investors to buy and sell them quickly. According to data from the Australian Securities Exchange (ASX), the average daily trading volume of Australian shares reached $5.8 billion in 2020, highlighting the liquidity of the share market.

2. Diversification: The share market offers a wide range of sectors and industries, enabling investors to diversify their portfolios easily. The ASX 200 index, for instance, includes companies from various sectors, from financials to healthcare.

3. Potential for Growth: Historically, shares have shown the potential for long-term capital growth. According to research by the Reserve Bank of Australia (RBA), Australian shares returned an average of 6.7% per annum from 1900 to 2020.

4. Income Generation: Some shares pay dividends, offering investors a source of passive income. In Australia, the ASX Dividend Yield Index provides insights into dividend yields, with many companies offering competitive dividend payments.

Cons:

1. Volatility: Share prices can be highly volatile, subject to market sentiment, economic factors, and company performance. The ASX Volatility Index (XVI) measures market volatility and can fluctuate during periods of uncertainty.

2. Risk of Capital Loss: There is a risk of losing a portion or all of your invested capital, especially during market downturns. Events like the Global Financial Crisis in 2008 led to significant declines in Australian stock prices.

Investing in the Australian Property Market:

Property investment involves purchasing real estate properties for rental income or capital appreciation. Here's what you need to know, with supporting statistics:

Pros:

1. Steady Rental Income: Owning rental properties can provide a consistent source of income through rent payments from tenants. According to data from CoreLogic, the national median rental yield in Australia was 4.01% in August 2021.

2. Tangible Asset: Real estate is a physical asset, which some investors find reassuring. The Australian Bureau of Statistics (ABS) reported that the mean house price in Australia was $721,800 in the June 2021 quarter, highlighting the tangible value of properties.

3. Potential for Capital Appreciation: Properties may increase in value over time, allowing investors to build wealth through capital gains. CoreLogic's Hedonic Home Value Index indicated that Australian dwelling values increased by 16.1% in the year to September 2021.

Cons:

1. Illiquidity: Real estate is less liquid than shares, making it challenging to sell properties quickly when needed. The time required for property transactions in Australia varies but can extend from weeks to months.

2. Management and Maintenance: Property ownership comes with responsibilities, including property management, maintenance, and associated costs. According to the ABS, residential property owners spent an average of $1,150 on repairs and maintenance in the June 2021 quarter.

Diversification: Combining Both Markets:

Diversifying across both the share and property markets can offer investors the benefits of both worlds, supported by statistical references:

Benefits:

1. Risk Mitigation: Diversification spreads risk across different asset classes, reducing the impact of poor performance in one area. A diversified portfolio in Australia can include a mix of ASX-listed shares and property investments.

2. Income and Growth: A balanced portfolio can provide both income (from rental properties or dividends) and the potential for capital growth (from shares). Many Australian investors leverage diversified exchange-traded funds (ETFs) to achieve this balance.

3. Adaptability: Investors can adjust their allocation between shares and property based on changing market conditions and personal financial goals. This flexibility allows investors to respond to dynamic market trends.

Conclusion: The decision to invest in the share market, the property market, or a combination of both depends on your individual circumstances, risk tolerance, and investment objectives. Diversification across both asset classes remains a compelling strategy for Australian investors, offering the potential for stable income and capital growth over the long term.

Until next time.

Murdoch Gatti

Private Wealth Manager | MComm Fin

IMPORTANT DISCLAIMER

Murdoch Gatti at York Wealth Management Pty Ltd ABN 46 605 610 679 is an Corporate Authorised Representative of Samuel Allgate Investments Pty Ltd AFSL No. 420170; Financial Adviser Authorised Representative Number 001007979.

This article has been prepared without taking into consideration any investor’s financial situations, objectives or needs. Accordingly, before acting on the advice in this article, you should consider its appropriateness to your financial situation, objectives and needs. Every reasonable effort has been made to ensure the information provided is correct, but we cannot make any representation nor warranty as to the accuracy, completeness or currency of that information. To the extent permissible by law, no responsibility for any errors or misstatements is taken, negligent or otherwise. SAI or its authorised representatives may also receive fees or brokerage from dealing in financial products, see the Financial Services Guide for information about the services offered available at York Wealth Management.