If you’ve got some money stowed away that you’re hoping to invest – particularly if you’re the owner of a self-managed super fund (SMSF) – you’ve got a conflict on your hands.
There are legions of different avenues to invest your money. But when it comes down to it, you’re probably going to be tossing up between investing in property and shares.
A Russell Investments long-term investing report painted a complicated picture regarding this question. According to the report, while shares outperformed property during the decade to 2013, over the last 20 years, residential property investment brought a higher return to investors.
With either choice seeming like it has great potential, what will you decide to do with your SMSF? There are more factors to consider than simply the potential return.
The case for shares
One of the advantages of investing in shares is the relative ease with which you can enter the share market. It takes as little as a few thousand dollars, which makes it accessible and realistic for many consumers.
By contrast, according to figures from RP Data for December, median house prices in Australian capitals range from $326,000 in Hobart to $925,000 in Sydney. This kind of capital may not be at everybody’s fingertips.
Moreover, the startup costs are much lower. While you’ll have to pay a brokerage or transaction fee upon starting out in shares, this pales in comparison to the stamp duty – or five percent of the property price.
Finally, the liquidity – another way of saying how easy it is to sell or buy assets – makes shares potentially attractive. If you have a change in your finances, it’s relatively easy to sell a few of your shares. The same can’t be said for that two bedroom apartment.
The case for property
One of the big draws of property is that it is a relatively stable asset. The price of shares can vary wildly from one day to the next due to the ease with which they’re bought and sold. And we’ve all heard the horror story of someone who invested into what they thought was a sure thing one day, only to find their investments had become worthless the next.
By contrast, owning a piece of real estate – a physical, tangible investment – can bring more security. You can typically borrow money at a much more favourable rate although you will need a sizeable deposit and people taking this avenue need to be comfortable with borrowing a lot more money from the bank. In the last six months, around half of all lenders have introduced higher interest rates for investors, at the request of the government regulator. This adds a small sting in the tail of investors, however there are still low rates available to investors, you just have to look a bit harder.
One safety net for property investments is to fix your home loan . This means you know what your monthly repayments are for a set amount of time, so you can plan accordingly. Australians are typically nervous fixers, with only 10 – 15 per cent of the market choosing this option at any given time, but with rates at record lows, it could be a good option for someone who likes this added security.
In all, there’s no right answer. Either can be a strong investment – but you have to seek specialist advice to determine which works for you.