What is better, Property investment or Shares?

Should I invest in property or should I invest in shares? This has been the question that we all asked ourselves at one point or another in our lives. What is better from perspective of return? Shares or property? In the battle of these two investment vehicles, which one wins? Here is our view hat should help you form your own decision on which one suits you better.

Property versus shares – the question

This is often the backyard BBQ question. Depending on who you listen to they would indicate that either property or shares win “hands down”. There is a whole range of opinions, views and convictions. Some people like shares, due to their performance and dividends, others like property due to the perceived stability of the property market.

What ASX is telling us about the property versus shares debate?

Let us take a look at ASX Long-term Investing Report, which can be found here. This report will be used by us to rank the best performing asset classes in the last 10 and the last 20 years.

Property versus Shares in the last 10 years.

Comparison with last year's gross returns Property, Shares and other assets: 10 years to December 2017 vs December 2016
Comparison with last year’s gross returns Property, Shares and other assets: 10 years to December 2017 vs December 2016

Property has performed outstandingly well in the last 10 years.  as you can see it has outperformed the share market by almost 100%! However, caveat emptor, the tremendous run up in property prices that we have seen of late, might not replicate again in next 10 years. Past performance is not an accurate perdition of future performance.

Also note that this analysis doesn’t include the after-tax benefits of holding shares (such as franking credits) which could change the picture, and drastically for some investors.

How about property versus shares in 20 years?

Comparison with last year’s gross returns, Property, Shares and other assets: 20 years to December 2017 vs 2016
Comparison with last year’s gross returns, Property, Shares and other assets: 20 years to December 2017 vs 2016

Now even with the latest run up in property prices, shares have come very close to providing the returns that the property provided. If not taking into account the latest run up in property prices shares would have outperformed.

Australian residential property took the top spot in 2001 and 2002, but also came last (below cash and Australian bonds) in 2004 and 2005.

The verdict: which one is better, property or shares?

Both investment strategies can provide significant return to investors and both strategies have costs and risks associated with them. In Australia, we are lucky to have seen significant return from both asset classes. We think that regardless of which decision the investor makes, they are likely to have much higher returns if they actually make the decision of investing.

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