When creating an investment, you want to ensure that you’ll get reliable income and capital returns over the long term. So what’s the best way to do this?
Oddly enough, this important investment decision comes down to your personality type and the lifestyle you choose, as much as the market evidence.
Who’s choosing property?
Australians associate property ownership with better living standards, security and success. People who choose to buy property are generally more traditional and conservative and have location stability with regard to employment.
Who’s choosing shares?
Long term averages show that investment in the sharemarket will outperform property owned for the same period of time. While the share market is more historically volatile, this is changing a boom and bust cycles become more prevalent globally.
Owning shares doesn’t tie you to a location, allowing you to pursue your career goals anywhere easily. There’s also no ongoing maintenance, council fees, neighbours or tenants to worry about, and the whole investment can be easily managed online.
Transactional costs are low, and you can’t lose more than you invest. Plus you get ongoing income through payment of dividends.
So why is property still so popular?
Why Australians Choose Property Over Shares
Most wealthy Australians hold their wealth in property. While this may change as our culture adapts to the digital age and lifestyles change, let’s take a look at why property ownership is Australia’s investment of choice.
1. Manipulation & Information
The property allows you to buy a home for less than it’s true value, and sell it higher. There’s an imbalance of information which means you can benefit from expert advice and an insider’s edge.
By contrast, the sharemarket has information mostly equally available, and everyone buys & sells shares at the same current prices.
You can’t control the board of directors and the decisions made by the companies you invest in, but you do have a measure of control over the property you purchase by choosing the location, maintaining, renovating or renting it out.
3. Necessity of housing & familiarity
Housing is tangible, and it’s something everyone needs. While this may change in the future, most people still view ownership of a house with a yard as a symbol of success. It’s what we know and understand.
Once you have equity in a property, you can use this for further investment.
5. Volatility & Risk Appetite
In the short term, owning property is usually less volatile than investing in the share market. This means if you’re more conservative, or anxious, then investing in property will be a calmer journey for you.
Historically, there’s lots of ways to claim tax back when you own an investment property. With the winding back of negative gearing, this is changing.
What’s the future of investment in Australia?
While most of the wealthy Australians today have their wealth based on property, will this be the case in ten or twenty years from now?
The property market is becoming more volatile, as the recent Royal Banking Commission reveals flaws in responsible lending, with evidence of high-risk mortgages being taken out Australia-wide. As the Australian lifestyle adjusts to a new age of technology, we might see a shift to the dominant source of wealth.
Which option will you choose?
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