When it comes to investing, two of the most popular options that frequently come up are shares (stocks) and property (real estate). Both offer unique benefits and risks, making the decision of where to place your money not always straightforward. With so many factors at play—financial goals, risk tolerance, investment timeline, market conditions, and personal preferences—choosing between shares and property can feel overwhelming.
This guide aims to help you navigate this complex decision by comparing the two investment options. We will break down the key features, advantages, and risks of both shares and property, so you can better understand how each investment could fit into your broader financial plan. Whether you’re a seasoned investor looking to diversify your portfolio or a beginner contemplating your first investment, this comprehensive comparison will offer you valuable insights to make an informed choice.
Shares vs property – comparing the two options
Investing in shares and property are two distinct ways to grow wealth. Each option has its pros and cons, and the right choice depends largely on your personal circumstances. To make a well-rounded decision, it’s crucial to look at both investments from multiple angles, including potential returns, risks, liquidity, entry costs, ongoing expenses, and tax implications.
Let’s start by exploring what investing in shares involves, followed by a detailed look at property investment.
Investing in shares
When you invest in shares (also called stocks), you are purchasing equity in a company. In simple terms, this means you own a portion of that company. Shares are traded on stock exchanges, such as the Australian Securities Exchange (ASX), the New York Stock Exchange (NYSE), or the London Stock Exchange (LSE), where they can be bought and sold. Investors make money in shares through two main avenues: capital appreciation (the increase in the value of the shares) and dividends (a share of the company’s profits paid to shareholders).
The stock market offers various types of shares, including common shares, preferred shares, and exchange-traded funds (ETFs), each with different risk and reward profiles. Share prices fluctuate based on the company’s performance, broader economic conditions, and market sentiment. As a result, share investing can be highly volatile, but it also offers significant growth potential, especially over the long term.
Benefits of investing in shares
Investing in shares has several advantages that make it an attractive option for many investors.
- Potential for High Returns
Historically, shares have outperformed other asset classes over the long term. While past performance is no guarantee of future returns, shares offer the possibility of substantial growth, particularly if the companies you invest in perform well. - Liquidity
Shares are generally highly liquid, meaning they can be bought and sold relatively quickly in the stock market. This allows investors to access their funds or reinvest their profits with minimal delays. - Diversification
With shares, you can easily diversify your investments by purchasing shares in various companies across different industries and geographic regions. Diversification helps spread risk, reducing the impact of poor performance in any one sector or company. - Dividends
Many companies pay dividends to shareholders. Dividends are regular cash payments distributed from the company’s profits, providing a steady income stream in addition to potential capital gains. - Leverage
Investors can use leverage to amplify their returns by borrowing money to buy more shares. While this can increase potential profits, it also magnifies losses, making it a strategy that requires careful management.
Risks of investing in shares
As with any investment, shares come with risks that investors should be aware of.
- Market Volatility
Share prices can fluctuate dramatically, sometimes within a matter of minutes. These price swings can be driven by a variety of factors, including changes in the company’s performance, broader market trends, political events, and economic conditions. While short-term volatility is normal, it can be nerve-wracking for some investors. - Company Performance
The value of your shares is directly tied to how well the company performs. If the company underperforms or faces challenges (such as a downturn in its industry or poor management decisions), the share price could fall, potentially resulting in a loss for investors. - Economic Factors
Broader economic conditions, such as inflation, interest rates, and changes in government policy, can impact share prices. During economic downturns, stock markets tend to experience declines, affecting the value of your investments.
Returns
Shares are known for their potential to deliver high returns, particularly over the long term. The stock market has historically generated average annual returns of about 7%–10%, though this can vary depending on the specific shares you own and the length of time you hold them. However, higher returns come with higher risks, especially over short time periods. Investors should be prepared for potential losses in the short term and remain focused on their long-term investment strategy.
Liquidity
One of the key benefits of shares is their liquidity. You can buy or sell shares quickly and easily through a stockbroker or online trading platform, making them a more flexible investment option. This liquidity allows you to respond swiftly to changes in the market, rebalance your portfolio, or take advantage of new investment opportunities without being locked into a long-term commitment.
Entry costs
The entry costs for shares are relatively low, typically involving the cost of the shares themselves and brokerage fees.
Ongoing costs
The cost of getting started in share investing is relatively low compared to property. Typically, you’ll need enough capital to purchase the shares you want and cover any brokerage fees. Most online trading platforms offer low-fee trading options, meaning you can begin investing in shares with just a few hundred dollars. Additionally, there are no legal fees or stamp duties involved, making it a more accessible option for many investors.
How we help manage risk and maximise returns when investing in shares
Navigating the stock market can be daunting, especially for new investors. That’s where we come in. Our team of financial advisors provides expert advice and portfolio management services to help you manage risks and maximise returns. By working with you to understand your financial goals, we create tailored investment strategies that fit your needs and risk tolerance. We also use a dynamic asset allocation approach, which adjusts your portfolio based on market conditions, helping to protect your investments during downturns and enhance returns during market rallies.
Investing in property
Investing in property involves purchasing real estate, such as residential homes, commercial buildings, or industrial facilities. Real estate is a tangible asset, meaning you can see and physically interact with the property. Property investments typically generate income through rental payments and can appreciate over time, offering investors two avenues of potential return: rental income and capital appreciation.
There are several types of property investments, including residential rental properties, commercial real estate, and real estate investment trusts (REITs), which allow investors to invest in property without directly owning the physical asset. Unlike shares, property investments are not as liquid, and the process of buying and selling property is more complex and time-consuming.
When you invest in property, you’re purchasing a tangible asset like a house, apartment, commercial building, or land. Unlike shares, which represent part ownership in a business, property is a physical asset that you can see, touch, and manage directly. Property investment typically involves two primary objectives: generating income through rent and benefiting from the potential appreciation in property value over time.
Benefits of investing in property
Investing in property comes with a range of benefits that attract many long-term investors:
- Stable Income: One of the primary reasons people invest in property is the potential for a stable and reliable income stream. When you own a rental property, tenants pay rent regularly, which can help cover mortgage payments or provide a steady income, especially in retirement.
- Appreciation: Property prices, especially in prime locations, tend to appreciate over time. While there are fluctuations, many investors see property as a safer long-term investment, with the potential for significant capital gains over decades.
- Tangible Asset: Unlike shares or other financial instruments, property is a physical asset. Many investors appreciate the comfort of owning something they can touch and control. Additionally, some properties, like homes or vacation rentals, offer the dual benefit of personal use and investment.
- Leverage: Property is one of the few investments where you can borrow large amounts of money to fund your purchase, which can amplify your potential returns. For example, with a deposit of 20%, you can own a property worth much more, allowing you to benefit from the capital growth on the entire property value, not just your deposit.
Risks of property investment
As with any investment, property comes with risks that investors need to consider.
- Market Fluctuations
While property values generally increase over the long term, they can also fall, particularly during economic downturns or market corrections. This can result in potential losses for investors. - Maintenance Costs
Property requires ongoing maintenance and repairs, which can be costly. Whether it’s replacing a roof, fixing plumbing issues, or upgrading appliances, these expenses can add up and eat into your rental income. - Illiquidity
Unlike shares, property is not a liquid asset. Selling a property can take months, and transaction costs such as legal fees, real estate agent commissions, and stamp duty can be significant.
Returns
Property investment returns are typically derived from two key areas: rental income and capital growth. Rental income provides ongoing cash flow, while capital growth comes from the increase in the property’s value over time. However, returns can vary depending on location, market conditions, and the type of property.
Investors who hold property over the long term, particularly in high-demand areas, often see substantial capital gains. However, it’s essential to remember that property markets can go through cycles of booms and downturns, so patience is often required for long-term investors.
Liquidity
Real estate is considerably less liquid than shares. Selling a property can take weeks, months, or even years depending on the market conditions. The process of selling a property involves several stages, including marketing, inspections, negotiations, and the legal transfer of ownership. Additionally, the costs associated with selling, such as real estate agent commissions and legal fees, can significantly eat into your returns.
For investors looking for flexibility or needing to access their capital quickly, property may not be the most suitable option. It’s important to plan for the long-term when investing in real estate, knowing that you may not be able to quickly cash out your investment.
Entry costs
The entry costs for investing in property are significantly higher than for shares. While shares can be purchased with relatively small amounts of money, property requires a substantial upfront commitment, including the following costs:
- Deposit: A typical property purchase requires a deposit of 5% to 20% of the property’s value.
- Stamp Duty: This is a government tax payable on the purchase of the property. Stamp duty can vary depending on the state and value of the property, but it can add tens of thousands to the overall cost.
- Legal Fees: You’ll need a solicitor or conveyancer to handle the legal side of the transaction, including contracts and settlement.
- Building and Pest Inspections: Before purchasing, it’s wise to conduct building and pest inspections to ensure there are no hidden issues with the property.
- Loan Application Fees: If you’re borrowing to invest, your lender may charge fees for processing the loan application.
Due to these costs, entering the property market requires significant capital, making it less accessible to some investors compared to shares.
Ongoing costs
Once you’ve purchased a property, there are several ongoing costs to consider:
- Maintenance: Properties require regular maintenance, such as repairs, repainting, and replacing appliances. If you own rental properties, tenants may also cause wear and tear that requires fixing.
- Property Management Fees: If you don’t want to manage the property yourself, you can hire a property manager to take care of the day-to-day tasks such as collecting rent, handling maintenance requests, and finding tenants. Property management fees typically range from 5% to 10% of the rental income.
- Insurance: Landlord insurance is essential for protecting your property against risks such as fire, damage, and tenant defaults. It’s another ongoing cost to factor into your investment calculations.
- Council Rates and Taxes: Property owners are required to pay council rates and, in some cases, land tax, which can add to the ongoing expenses of owning real estate.
How we help manage risk and maximise returns when investing in property
Our team has extensive contacts among investment property professionals, including real estate agents, buyers’ agents, property managers, quantity surveyors, general insurance experts, finance brokers, accountants, and property lawyers. Together, we work to achieve the best outcomes and maximise your returns. Additionally, our team assists with the financial planning aspects of property investment, ensuring your cash flow, tax position, and borrowing capacity are optimised, so you are not overextended.
What are the tax implications of investing in shares & property?
Shares investment tax implications
When investing in shares, there are several tax implications to be aware of:
- Capital Gains Tax (CGT): When you sell shares at a profit, the gains are subject to CGT. However, if you hold shares for more than 12 months, you may be eligible for a 50% CGT discount, reducing the amount of tax you pay on the profit.
- Dividends: Dividends received from Australian companies are often “franked,” meaning they come with tax credits that can offset some of your tax liability. This is known as the dividend imputation system, and it ensures that company profits are not taxed twice (once at the corporate level and again at the shareholder level).
How we can help manage this?
Our team works with tax experts to help you navigate the complexities of tax laws, ensuring that you make the most of available deductions and credits. We work with you to develop tax-efficient investment strategies that align with your financial goals. From managing capital gains tax to maximising franking credits on dividends, we ensure you minimise your tax liability while complying with all legal requirements.
Property investment tax implications
Like shares, property investment has tax implications that investors need to be aware of:
- Capital Gains Tax (CGT): When you sell a property at a profit, you’re liable to pay CGT on the gains. If the property is your primary residence, you may be exempt from CGT. However, for investment properties, CGT applies. Similar to shares, if the property is held for more than 12 months, you may be eligible for a 50% CGT discount.
- Rental Income: Income generated from renting out a property is taxable. However, you can deduct certain expenses related to the property, such as interest on the loan, repairs, and management fees, which can reduce your taxable income.
How we can help manage this?
Our team works with tax professionals to help you manage your property investment taxes efficiently. We help you understand what expenses are tax-deductible and ensure that your tax position is optimised for maximum returns. We also assist with strategies for minimising capital gains tax when it comes time to sell, ensuring you keep more of your profits.
The benefits of a diversified portfolio containing both shares & property investment
Building a diversified investment portfolio that includes both shares and property can help balance your risk and returns. While shares offer the potential for higher returns and liquidity, property can provide stability and a steady income stream through rent. The key to successful investing lies in spreading your risk across different asset classes.
A well-diversified portfolio reduces the impact of volatility in any one investment class. When one asset class underperforms, another may perform well, smoothing out your overall returns. This approach provides a more stable foundation for long-term growth, protecting you from the ups and downs of individual investments.
For example, during a stock market downturn, property values may remain stable, providing a buffer against losses. Conversely, during periods of low property market growth, shares might provide higher returns.
How we help our clients create a balanced portfolio that aligns with their financial goals & long term investment strategy
Our team works with you to create a well-diversified portfolio tailored to your financial goals and risk tolerance. We take a holistic approach, ensuring that your portfolio contains a mix of asset classes that complement each other. We provide ongoing advice and support to ensure your investments are performing optimally and remain aligned with your long-term strategy. Whether you’re just starting or looking to refine your investment approach, we’re here to help you make informed decisions that enhance your financial well-being.
How we can help you decide
Deciding between investing in shares or property is a significant decision, and the right choice often depends on your financial goals, risk tolerance, and personal circumstances. Each option has its benefits and risks, and understanding these is key to making a sound investment. That’s where we come in.
Our team of experienced financial advisors is here to guide you through the decision-making process. We take the time to understand your unique situation and provide tailored advice that aligns with your goals. Whether you’re looking for income, growth, or a mix of both, we can help you weigh the pros and cons of each investment type. From understanding the tax implications to helping you diversify your portfolio, we’re here to provide clarity and support every step of the way.
Ready to invest in shares or property?
If you’re ready to start building your wealth through shares or property, now is the perfect time to take action. Whether you’re a first-time investor or looking to expand your portfolio, our team of experts is here to help you navigate the complexities of investing and develop a strategy that works for you.
Get in touch with us today to schedule a consultation and begin your journey toward financial security. Our advisors are committed to helping you make informed decisions, maximise your returns, and achieve your long-term financial goals. Let us partner with you to build a brighter, more secure future.
