When it comes to building wealth, there are many investment strategies that can help you achieve your financial goals and secure your long-term future.
Both shares and property have the ability to generate good income and capital returns, but whether you should invest in real estate or shares, or both, depends on several factors.
What’s your risk appetite?
Investing, by its very nature, comes with risk, but understanding the level of risk that you are willing to accept is one major consideration when deciding on property or shares. For instance, with investing in shares, you are likely to witness larger fluctuations with your returns and losses compared to real estate, particularly over the short term.
That means, when it comes to shares, you need to be comfortable that the value of shares can alter daily, which could see your portfolio rise and fall significantly over short periods. By contrast, property prices are unlikely to fluctuate daily and go through the same steep growth periods followed by declines, making it attractive to those with lower risk tolerance.
Are you investing for the short- or long-term?
Investment timeline is another key factor to consider when choosing whether investing in shares or property is the right option for you.
If you’re playing the long game, property may make more sense as it is viewed as a long-term investment that over a significant length of time may deliver positive returns. As an expensive asset it usually requires a long period of time to provide profitable return.
Other factors that make property an ideal long-term investment include high costs involved in buying and selling real estate as well as the potential for negative gearing benefits.
Conversely, shares are easier to use as a short to medium term investment as time on the market is far less critical that timing in the market when it comes to trades. What’s more, shares are more flexible than real estate and thus can be sold fast or purchased quickly as your individual circumstances change, gearing them more to the short-term.
What do you know more about?
Both property and shares are areas that can take a significant amount of time to learn about in order to get the knowledge you need to make confident investing decisions.
However, when it comes to making a call on shares versus property as an investment, it’s worth remembering that less specialised knowledge is required in real estate. Still, it’s a good idea to research the particular property market you’re interest in as where you invest and what type of property you buy are factors that will impact your return on investment.
It’s also worth remembering that investing in property comes with its own fields of knowledge that you’ll have to get across, like handling maintenance and repairs, screening tenants, and if you invest in an apartment dealing with strata. While they may not be too tough to get your head around, they can certainly be time consuming in some cases.
With shares, things get pretty complicated fast. For instance, you’ll have to decide whether you want to invest in individual shares, an ETF, managed fund or hedge fund, which means having a good understanding of each vehicle and its pros and cons. Hence, if you decide to go down the shares route, it’s a good idea to educate yourself before you jump in.
How much do you have to invest?
Property costs a lot to invest in, especially in many parts of Australia where the real estate market continues to boom. This high cost of entry can mean people often have to spend years saving before they can get into the market, potentially decreasing its attractiveness.
On the other hand, investing in shares does not necessitate having huge amounts of available cash to start out. With the right kind of share portfolio, you can start investing without borrowing money. There’s also a variety of micro-investing apps that let you start investing with spare change, making shares attractive to those with less cash on hand.
Remember, whether you ultimately decide to invest in shares or property, investing always comes with risk and so it pays to carefully consider your choices before starting out.
