Shares are better investments than property!

Everybody has their opinions on all manner of topics and investors are certainly no exception. For as long as there have been people investing, there’s also been plenty of debate about what is the best investment? And like all the big questions in life, such debate is as treacherous a minefield as one could possibly enter.

And more often than not, contributions are usually just a matter of “each to their own” rather than being based on a pragmatic dissertation composed over many years. It is, therefore, a very wide range of viewpoints that litters the debate with no one correct answer.

Some may suggest recent outperformance as being the acid test. Whilst others might simply hold a proclivity towards an investment because it was what their parents did. Yes, this debate truly garners contributions from the empirical, right through to the ethereal!

So is it really just about making the most money, or can there be other, equally important attributes, needed to elevate an asset into the exalted position of the best? And, as you can well imagine, the right answer for one investor will most certainly not be for another.

So for better or worse, here are my five reasons as to why shares make the best investment over property;

1:   Liquidity

Investing is all about money. And money is cash; notes and coin of the realm! Unless you have that ‘piece of paper’ with the Governor of the Reserve Bank’s signature, you don’t actually have money. Therefore how quickly an investment can be turned into cash is a pretty bloody important consideration.

Now, putting aside market cycles, geopolitical effects on investments and anything else that could adversely affect an asset, I prefer to know that I can exit my investment easily, cost-effectively and most importantly, promptly. And this is not just about selling underperforming assets. It’s also a critical factor when considering taking profits. And just as importantly, it gives me great peace of mind knowing that if required for whatever reason, I can access cash within a very short period of time.

More specifically, bailing out of an investment ASAP is also an extremely effective risk management strategy. Sitting around watching your investment go down the tubes is akin to putting hot needles into your arm; no one is lining up to do it! So having the ability to liquidate quickly is a vital part of an investment strategy.

Therefore I can achieve everything I need in terms of liquidity requirements with share investments. The property, on the other hand, is a very ‘lumpy’ asset that requires a great deal of time, further costs and a coterie of participants to extricate oneself from it. You wouldn’t want to be in a hurry should you want to liquidate a property investment!

2.          Immediate and efficient market

Actioning my investment strategy is important and ‘caveat emptor’ shouldn’t apply to the actual transaction. As a result, I require an efficiently conducted market in order to buy and sell. Domestic stock exchanges provide this. They list current pricing data for both buyers and sellers and grant all investors access to this information.

This means buying or selling shares, once decided, can be done immediately, payment is effected 3 days later and it is all accomplished in a well-regulated market place. Properties, on the other hand, require agents, marketing campaigns, viewings, buyer negotiation and long lead times before settlement

2.      Reliable information

Thanks to the stock market and associated listing rules, share investors are provided with access to a constant stream of reliable information. As a result, the efficient market hypothesis suggests a shares price has all available information factored into it. In other words, the price quoted on the screen is deemed to be an accurate reflection of a company’s future prospects.

Individuals can also easily conduct their own fundamental analysis through the comprehensive data supplied on stock sites. Additionally, for those so inclined, technical analysis can be done via specific software or what is available through stock sites.

In addition to this, there is a huge amount of opinion and recommendations available via stock- brokers, market pundits, and the media.

Real estate information on the other hand rarely if ever drills down into individual property funda- mentals with their final sale price varying widely from what was initially advertised.

3.      Trading Costs

Shares beat property absolutely hands down in this ‘department’. Without getting too deeply into specifics, buying shares and holding shares has just an initial one-off cost. There are no ongoing costs associated with shares. And these one-off entry costs are incredibly cheap. Trades of up to $10,000 can be as little as $20 with larger trades normally calculated at a percentage of the transaction total.

There are even brokerage sites offering free trades and many offer generous quantity discounts. In other words, it is a very cost-effective investment. And when it comes time to sell your shares there is just another one-off fee, calculated exactly the same as the entry costs. Cheap as chips!

The property, on the other hand, attracts what is for me, absolutely outrageous costs. Just to buy a property requires the services of a solicitor or conveyance.

You are also up for costs associated with legal searches on the property, local council requirements and anything else that could impinge legally on your purchase. Plus depending on your state or country there are stamp duties applied (tax) which normally runs into the 10’s of thousands of dollars.

Along the way, you are up for repairs and maintenance, local council rates and anything else that may apply as a landlord. For a property purchased in a strata development, you will also be up for quarterly management fees. Additionally, if you hand over the leasing responsibilities of the property to an agent you’ll be up for around 8% of weekly rental income.

And when it’s time to sell there’s even more! The selling agent will take a percentage fee of the final sale price, approximately 2.5%. There are also advertising costs and all the fees associated with your solicitor or conveyance that are needed to complete the transaction.

Shares win hands down in regard to cost-effectiveness!

2.      Diversification

A key tenet when building an investment portfolio is that of diversification – quite simply “not putting all your eggs in the one basket”. Spreading the risk across numerous assets minimizes the

effects of individual losses.

It is an easy matter to diversify a share portfolio across both industries and geographic regions. And can be done either through the individual investor’s due diligence or by seeking professional assistance.

Buying a single property concentrates all the investment risk into a single asset which could then be argued actually moves the investment towards the realms of gambling rather than investment.

Conclusion

There are plenty of other very compelling reasons why I believe shares are the superior investment. Even just getting started in share investing requires just $500 – that’s all. Buying an investment property, on the other hand, try starting at $500k!

Now I have long held a penchant for share investing in preference to real estate. Initially, it was primarily the costs that deterred me. There are so many, it was always a wonder to me that the aver- age investor could actually make a profit.

But over the years many other factors have come into the equation. And if you have an investment plan these ‘other’ factors start to make themselves very evident when executing your plan.

But as I said at the beginning, it is ‘each to their own’, and for some people, property investment is the only way to go. I recall during my time as an adviser, property investors always rated their in- vestment as a 3/10 for risk. On the other hand, share investment was always perceived by them as a 10/10.

It is obvious that education will play an incredibly important part in which investment vehicle is chosen, and I would certainly suggest before you undertake any investment you should do your homework thoroughly before committing. And be sure to seek professional guidance when you feel it’s needed. Thank you for reading and visiting, I look forward to your next visit. Homepage