Should I invest in property or shares?

Should you invest in property or shares? It’s a discussion that gets brought up almost every day.

Absolutely, the market feels really volatile at the moment, given the media coverage (words like soars and bloodbath seem to be all to frequent). It can be really difficult to have a rational and realistic conversation about various assets and the role each plays with your wealth.  In most cases, you encounter statements to the extreme on both sides of the argument. Chances are you will hear statements such as ‘shares being too risky, but you can’t go wrong with property’ or ‘property is going to go belly-up soon.’ While everyone is entitled to their own opinion, it can be hard to stomach all these ‘extremist’ views in this ongoing debate.

While there is no question that there are shares that are considered more volatile, or even extremely risky, compared to others and property that will wind up selling for a loss, it is essential for you to form your own opinion about the situation. When trying to figure out ‘what should I invest in’ learning the fundamentals of every asset class is important.

Risk perceptions

Everyone worries about suffering a loss when making an investment. With the share prices being published daily, any sign of volatility can make those who are investing a bit nervous. In some situations, the temptation to sell to avoid a total loss becomes too great to ignore. However, house prices are not always visible and you will only know about the value when the house is actually put up for sale. Sine you won’t be able to see the property’s value each day, the actual thought of investing in it does not feel so risking.

However, in these investments, the high entry and exit expenses and the lack of liquidity and cost of maintenance for the property can pose risks in completely different ways. In most cases, investors who choose property for their dollars will see themselves as in it for the long term, due to this different risk perception.

Yield

The actual yield on a property will begin to decrease if the rents are not rising with the capital values. Also, if the share prices fall then the dividend yields on the shares will increase. In the past several years, the net yield on purchased property (after considerations for maintenance, insurance and rates) was as low as 2 percent pa, and the yield on some common shares was over 9 percent pa.

Supply and demand

In the short term, the capital value will be reduced by the number of people who are buying and selling. When you are a smart and informed investor, you will be able to select where the future demand is going to be, rather than just jumping ship when the tide has started to roll in.

Buy value

One tried and true way to invest is to buy low to market averages. Assessing the price accurately can be done by using the price/earnings ratio. This illustrates the number of years of earnings that will be necessary from an investment to earn your money, as blue chip shares typically sell for a multiple of the company’s earnings.

The bottom line

Shares and property both have a place in some portfolios; however, it is essential to find the right balance for you. In most cases, talking with a professional will help to ensure the right decisions are made.

Disclaimer: The information provided on this website has been provided as general advice only. We have not considered your financial circumstances, needs or objectives and you should seek the assistance of your Synchron Adviser before you make any decision regarding any products mentioned in this communication. Whilst all care has been taken in the preparation of this material, no warranty is given in respect of the information provided and accordingly neither Mirador Wealth Management, Synchron, nor its related entities, employees or agents shall be liable on any ground whatsoever with respect to decisions or actions taken as a result of you acting upon such information. Authorised Representatives of Synchron AFS Licence No. 243313