Investment property versus share portfolios

Should you invest in a property or share portfolio? It’s an investment decision that many investors grapple with.

Both property and shares can provide you with the opportunity to achieve capital growth, regular income, or both. For example, the value of a property can increase over time and it can also potentially be rented out to tenants to generate income.

Similarly, the value of shares can increase over time and you can potentially receive income (known as dividends) from them. Dividends are distributions from company profits.

Of course, the opposite is also true. The value of both property and shares can potentially drop over time. There is also the potential that you won’t always be able to find tenants for an investment property, and share dividends usually aren’t guaranteed.

Investment property basics

Many investors like property because it is a tangible and relatively timeless investment. You can see, touch and improve a property asset (e.g. by making renovations). These days, it’s also easy to research property values and trends online. You can also visit suburbs, open houses and auctions to get a feel for the market.

If you’re looking to buy property, it’s important to do that research so you buy a good property at the right price to maximise your capital growth prospects. Australian residential property has a long-term capital growth trend. It should be considered as a long-term investment to cater for shorter-term periods when property markets stagnate or even decline.

Share investment basics

Unlike property, shares are intangible and you’re relying on the performance of the company you’re investing in for your return. You need the managers and staff of the company to grow its profits.

If you want to invest in shares, there are two basic ways to do it:

1) you can buy shares in publicly listed companies on the Australian Securities Exchange (or on an international share market) directly yourself, or

2) you can invest in a managed fund.

In a managed fund, your money is pooled with that of other investors and you rely on a fund manager to buy and sell shares on your behalf. They typically invest in a range of shares, allowing you to spread your investment risk more easily. Because they have pooled funds, they can invest in more companies in a wider range of industries. If shares in some companies aren’t performing well, this can be offset by the fund’s investments in other companies that are. This investment strategy is known as diversification.

Like property, the Australian share market has a long-term growth trend. However, it’s important to understand that the value of shares can be more volatile. For example, the value of the Australian share market fell by 54% over a sixteen-month period in 2007 and 2008 during the global financial crisis (GFC). Like property, shares should be considered as a long-term investment so you can ride out any major market corrections that may occur.

Property versus shares: key investment considerations

Investment property portfolios generally allow you to make greater use of negative gearing as an investment strategy than share portfolios. Examples of tax-deductible expenses on an investment property include:

  • management costs
  • repair costs
  • maintenance costs
  • borrowing expenses
  • legal expenses
  • property manager fees (if this type of service is used)

Shares have the advantage that they’re a more liquid investment than property. In other words, you can convert shares into cash more easily if you need to. You can also only sell a portion of your share portfolio if you need to. You can’t sell a portion of a property.

The costs of buying and selling shares are also far less than the costs of buying and selling property. Shares also have lower holding costs. For example, you don’t have:

  • council rates
  • insurance
  • body corporate fees and charges (for units/apartments).

How we can help

At Qi Wealth, our experienced, expert team of financial advisers can help you to build both investment property and share portfolios. We’ll take the time to understand your individual circumstances so that we can provide you with the best possible advice to help you achieve your financial goals.  We develop long-term, trusted relationships with our clients.

Contact us today to find out how we can help you!