Shares vs Property: the pros and cons breakdown

Shares vs Property: the pros and cons breakdown

NRL vs AFL. Neighbours vs Home & Away. Gas vs charcoal grill. Ford vs Holden. 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 shares vs property.

Shares: PROS

  • You will receive regular income from dividends. Which tend to grow with CPI, and can pay 6%-7%.
  • Easy for you to buy and sell on the market for a low cost.
  • You can Easily diversify your portfolio.  Providing you with exposure to many different companies or industries.
  • Little hassle after your initial investment. That can be as little as $500.
  • No leverage means you can’t lose more than you invested.

Shares: CONS

  • The share market can be volatile and you are exposed to market crashes.
  • They’re not a physical asset.
  • You can’t leverage them during periods of high growth.
  • Typically you have to pay capital gains tax when shares are sold.
  • 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

  • Your worries could include bad tenants, rental vacancies, interest rate rises.  Plus you have you have to allow 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 when you buy or sell.  Which typically takes months to conduct.
  • Your entry point for investment is high. With 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. Call and chat with 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).