Investing in Property Vs The Share Market

Monday, November 2, 2015 / Property Investment


When you decide that the moment in your life to start investing is upon you, there are many options and even more opinions available to you.

The two options that will stand out as being the leading two, are:

  1. Investing in real estate
  2. Investing in the Share Market

Both of these are time tested and proven methods of increasing your wealth and providing a better financial outcome for your investment. Both of these options have their own share of horror stories of people who have entered the market and then lost out. We have stock market crashes and we get housing slumps.

In understanding any investment there is always a method of understanding the particular risks that are apparent and being aware of the potential rewards that may follow.

The principle difference is:

When you invest in property you are investing in a tangible piece of land, with or without a building on it; with the belief that this land will be more desirable (and therefore more valuable) at a later point in time.

When you invest in the share market you are buying a piece of a company that is carrying on a business, with the belief that the company will perform well and be profitable well into the future.

The Different Types of Research Needed

When you are researching for an investment property, you will be looking at factors such as popularity of a suburb, existing prices, vacancy rates, rental yields and much more. This information is all rather publicly available and easy to navigate, provided you know the right channels.

When you are researching a company and deciding if you want to purchase part of it (buy stock in it) then you need to be researching the market or industry that they are in, their historical profit margin, projected profit margin, capacity to grow as a company, the board of directors, who the CEO is, and much more. Some of this information is often held privately, and other parts can be gained through research.

For real estate you are trying to work out if your property will be in more demand in a certain amount of time, with stock you are trying to work out if the business model of the company is sound and going to produce sizeable growth and profits.

How Involved You Must Be in Each Decision

Investing in property can be a reasonably involved process, as there is research, organisation of the finances, the purchase and then the management of the property itself. You can offset quite a lot of this involvement by hiring a sound investment team and property manager, however there is still quite a bit of personal involvement needed.

Investing in shares can also be a rather involved process. Arguably the research process can be quite a bit more involved, as there are many more factors that influence how well a business will operate as opposed to property markets. The transaction itself is a simpler process and can be done easily through a stock broker, and then do not require management so much as routine monitoring.

Arguably property investment is a more involved process than stock market investment, simply due to the fact that you have a physical property which requires management and decisions to be made on a more regular basis.

The Risks Apparent In Each Strategy

For property some of the largest risks that you face are risks that can be insured for, such as if the home is burnt down, or trashed by the tenants. Between home and contents insurance, land lord’s insurance and other insurance products available you are able to cover most of your major risks. Provided you have a sound investment strategy and haven’t built your investment in a region relying on one single factor to stimulate growth then the risk of the property rapidly devaluing is very minimal.

The risks you face with the stock market are that the business will fail, or cease to grow. Typically speaking stocks are separated into hat is known as ‘speculative’ and ‘blue chip’ stocks. A speculative stock is a young and unproven company typically, so the opportunity for sudden and rapid growth is high; as is the chances of sudden failure. Blue chip stocks on the other hand are stocks in large well established market leaders. Blue chips will have small but stable growth and they are deemed to have a much lower risk factor.

As much as investing is not simply gambling, there is always going to be risks that need to be assessed with both property investment and share market investment. Both options have high risk versions and low risk versions. It is about weighing up what risks you are prepared to take and the gains that you are expecting.

So Which One is Better?

This depends entirely on your personal situation and the goals that you have. Investment strategies are never a one size fits all approach, and should never be treated as they are. The strategy that suits and fulfils one person’s needs may not be a appropriate at all for another’s.

We would recommend that you speak with a financial advisor about your existing position. Whichever decision to decide to take, it should be the result of research and thorough investigation into all of the available options.

Just remember, a truly balanced portfolio will most likely include a mixture of stock and property!

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