Should You Invest In Shares Or Property? 

Are shares a better investment option than property or is property the superior choice? The answer is: it depends. Investments are highly personal and dependent on the amount you have in savings; your investment capabilities, knowledge and risk-profile; and your long-term goals.

The best place to park your money can also change over time, depending not only on your personal circumstances but the state of the economy.

For example, an October study of more than 1000 Australians revealed that rising inflation and interest rates were changing public attitudes about investments. The survey found that only 18% of respondents were confident that putting money into investment property would provide more return on investment given the nation’s current economic standing, while 11% chose shares and stock market trading. (The remainder felt more confident investing elsewhere, such as in high-interest bank accounts or their superannuation funds).

Despite the shifting public attitudes, property and shares still remain Australia’s largest investment pathways, and regardless of which one you believe will be a better investment for you, there are still a number of factors to consider to help inform your decision.

These include–but are not limited to–the upfront costs; the tax benefits or barriers; ease of entry into the investment market; and the time you are willing to commit.

Upfront Costs

When it comes to upfront costs of an investment, investing in the stock market has a much lower entry-cost. That’s because there are no loans, applications or additional fees to start trading. Instead, you simply have to set up an account with a stock trading platform, which will charge you brokerage fees. This may either be around 1-2% of your total purchase price, or a flat fee, which could be anywhere up to $30 per transaction.

For example, independent brokerage firm Tiger Brokers charges $6.49 per trade, whereas ANZ share trading arm charges 0.10% of the transaction (or $11, whichever is greater).

The upfront investment is much less, too. When investing in shares, you can invest as little as $500–although the minimum order does depend on the broker. Buying a property in Australia is, unfortunately, much more expensive than $500 and a 0.10% transaction fee.

There are a lot of additional entry costs to consider when purchasing property, too, including bank fees, legal costs, mortgage insurance, building insurance, real estate agent costs, stamp duty and more.

Tax Efficiency

“A tax-effective investment is one where the tax on your investment income is less than your marginal tax rate,” the Australian government-backed Moneysmart site explains. Since both shares and properties are subject to capital gains tax when sold (although discounts may apply), it’s worth considering their tax efficiency before making an investment.

Andrew Woodward, founder of The Investor’s Way, says the biggest tax benefit people usually associate with property is negative gearing.

As the ATO explains, your rental property is ‘positively geared’ if your deductible expenses are less than the income you earn from the property, while if your deductible expenses are more–and therefore you do not make a profit from renting out your property–then it is said to be ‘negatively geared’, allowing you to access the negative gearing tax break.

“Another tax benefit includes the ability to upgrade your property and claim depreciation on your improvements, reducing the cost of the upgrade to you, the investor,” Woodward says.

Shares, on the other hand, have the large tax advantage of dividends–which are paid out to investors from a company’s after-tax profit. In Australia, ‘franking credits’ are a credit that investors often recieve in addition to dividend payments. They represent the amount of tax a company has already paid on the earnings being distributed to shareholders, which means that investors are not taxed twice at tax time. Instead, investors can use that franking credit to pay tax they would otherwise pay on their earnings.

Ease of Entry

Just as there are minimal upfront costs in investing in the stock market, there are also fewer barriers of entry into shares than the property market.

Property often requires a loan application—unless you are paying in cash—which may be declined by the bank. Even if your loan application is accepted, your offer on a property could be declined. These factors make entering into the property market much more difficult, timely and costly.

For shares, oan application to a brokerage or share trading platform can be completed in a matter of minutes, as long as you abide by the legal requirement of being 18 years of age or older.

Investment of time

As Woodward explains, the timeframe of an investment is a key factor to consider when comparing the stock and property markets.

“Shares transactions are quicker both in buying and selling which enables shorter-term investments, whereas property is generally a longer-term investment,” he says.

Ease of entry plays a role here as well, as the swiftness in which an investor can enter the stock market at a low price point allows shares to be bought and sold in a matter of minutes (known as day trading).

Property, however, has much longer lead times due to loan applications, inspections, regulations and much more due diligence required.

There are many benefits to investing in property, Woodward explains. For one, it’s a stable and physical investment. Prices for the tangible asset don’t fluctuate daily like the share market does, and historically, the Australian property market has doubled every 9-10 years. Although, recently, it has been dropping in value owing to interest rate rises.

Additional benefits to property investment include: positive cash flow, tax breaks, and portfolio growth.

“Property investments provide an excellent opportunity to leap frog from one to another, adding new investments as the previous one grows in value, resulting in you controlling a much larger portfolio of properties, and therefore growing your wealth,” Woodward says.

But there are risks and negative factors involved with properties, too.

This includes the difficulty involved in entering the market and its high entry cost, including stamp duty; the risk of a property remaining vacant without tenants and therefore without any rental yield; and its lack of liquidity– “which means it is not easy to get out of [a property] if you need to for some reason, like a cash emergency,” Woodward says.

There are also many pros and cons to investing in shares. As previously noted, entry into the stock market is much easier and much cheaper compared to property. It’s also an easier exit, and shares can be traded on a much shorter time-frame, meaning it doesn’t have to be a long-term commitment.

Woodward also lists dividends and historical growth rates as two key benefits to investing in shares–although these are only beneficial if you invest for the long-term.

“The cashflow you receive from dividends is a great addition to your income and capacity to reinvest [and] over time shares have consistently grown to new highs, providing good returns for those that invest for the long term,” he says.

But the liquidity and ease of entry into the stock market can also be a negative, Woodward explains, especially due to its volatility.

“Choosing the right shares to invest in takes time and attention. When decisions are made without the necessary consideration of risk and returns, it can be a disadvantage,” he says, especially considering you could lose all of your investment if the company you have invested in goes out of business.

The time factor also has pros and cons. Despite being able to sell quickly, Woodward says growing wealth in stocks does take time and, to make the most of your share investments, “you need to leverage the power of compounding”.

Both properties and shares have many advantages, as well as their own risks. Woodward says, ultimately, his advice for potential investors is that they should know how to do both, as they will want to use both over the long term.

So is the answer to invest in both? Not necessarily, but it can be worthwhile in order to “take advantage of the respective cycles that shares and properties go through”.

“It is also a good form of diversification to have portions of your investing funds in more than one asset class,” Woodward says.

For the Australians surveyed on investments, this diversification approach seems to be front of mind.

Along with property and shares, respondents also said they are growing their finances through superannuation (22%), high-interest bank accounts (25%), precious metals such as gold and silver (7%), cryptocurrencies (3%), overseas currencies (5%) and more.

Note: When investing, it’s possible to lose some, and very occasionally all, of your money. Past performance is no prediction of future performance and this article is not intended as a recommendation of any particular asset class, investment strategy or product.