General Opinions on Property VS Shares

Hi All,

For a quick background information about me, I have only 1 property which is a PPOR and invested in shares for about 12 months now.

I've spoken to a lot of friends, relatives, colleagues etc. In general, their view on Property is a positive one but not for shares (mixed opinions but more negative than positive).

Typical Property Conversation:
Me: I just bought $x million worth of property
Foo (smiley face): Oh lucky you. I'm proud of you, when are you gonna do a house warming party?

Typical Shares Conversation:
Me: I just bought $x million worth of shares
Foo (doubtful face): Are you sure you have checked "blah blah blah"? I also heard a lot of people invested in shares who went broke. Have you consider "blah blah blah"?

For me, I consider property and shares are in the same risk profile. Anyone who buy property/shares need to do their own due diligence.
Hence, I don't quite understand why is the general perspective on shares are leaning towards the negative side without understanding the asset class?
Is that because shares are more complicated for general folks to understand as not everyone will understand how to read balance sheet or P/L statements or more abstract representation but easier for them to do house inspection as they can see, smell, feel it hence it's more real.

Do you guys come across this? And what's your view on the property and shares in general?

Cheers,
IBP

 

In general my (uneducated) impression on share is that it is higher risk than housing. One bad news and price go down the cliff. My rule of thumb (of course there are lots of exceptions) --> higher yield/ higher growth usually equals higher risk.

That said, I bought Sydney Airport shares about 1.5 year ago to 'try'. Bought $3.5 per share and now doubled. Should have bought $20K!

 

My view is that a balanced portfolio should have both property and shares. It is not one or the other.

 

Isn't that the same for property? One bad news, property price could potentially fall as well (may be not so much of a bad news, but a different/similar trigger could make property price to fall).

higher yield/ higher growth usually equals higher risk -> same for property, it's all depending on the type of property. Hence, same applicable to shares as well.
Here I don't want to go down to details like which type of property/shares. Just keep it on the high level or general opinion.

Very sensible response from a property expert

 

I'm guessing the trigger for property would have been discussed months before the price actually crash.
I would have cried if I hold Volkswagen share when they reveal the manipulation of emission

hence --> uneducated opinion
I don't really understand shares (or how to judge whether they are good or not) hence perceived risk

 

There are numerous advantages and disadvantages to either, so I'll try focus on some mindset issues that tend to give the responses you have encountered.

The transparency of price movement in shares seems to cause worry in a lot of people needlessly. Been able to see prices change by the second creates a panic and other strong emotions.

Many people's mindset when "investing" in shares is actually that of a speculator, they aim to buy and sell quickly for BIG profits. The most educated, informed and experienced people struggle to turn a profit from repeated buying and selling, what chance does joe average have? If they bought a broad ETF or LIC and forgot about it for the next 10-15 years they might stand a chance.

Some people seem to expect life changing financial rewards on the share market when only investing a relatively small amount.

They ignore leverage in their calculations.

They don't calculate compounding returns including the reinvestment of dividends - ASX200 is down since the GFC ASX200 accumulation index is well up.

Mob mentality, most people believe a (property) is good and b (shares) is bad therefore that opinion is spread and reinforced by people that really have no idea.

Both certainly have their place in investing. For myself leveraging into property to build capital and moving it towards shares is the goal.

 

@Hodor, well said.

Keep an open mind, know that knowledge is power and that there is more than one way to get to your destination. Focusing on the relatively stable income component of shares as opposed to volatile capital price movements may help reduce fear. Sometimes a combination of property and shares can be best. But of utmost importance is that despite any arguments for or against one asset class over another unless it passes the SANF it is likely to fail! If after all the above you are still in doubt stick to what you know and feel comfortable with.

PS: Have just finished an excellent craft beer tasting session so if the above doesn't make sense then I'm not to blame.

Not advice, especially at this moment.

 

Wow, you should have been around when we were buying property in USA in 2011, shock, horror.... the reaction was not positive.

At the end of the day there is risk with everything regardless.

If you are happy with what you are buying/achieved then who cares what others think? I certainly could not care less, I don't have to prove anything to anyone, and if I stuff up then I will be wearing not others

I am not good with shares, I don't have the right mindset IMO, so I go where I know I can make money, property for me all the way

MTR

 

I think a lot comes down to the fact that property is real and shares are imaginary, in a way.

I can visit a house, live in a house, see one out the window.

What the hell is a share? An imaginary promise to send me a few cents for each one I hold.

Economy goes down, shares go with it. The house is still there no matter what.

I throw money into an Index fund and have had the same response. It's risky and whatever else.

I say buying an illiquid single investment in an already inflated market is riskier!

 

I wish I had had some cash available back then, and the cahunas to back myself in!

 

From a purely personal perspective i find shares can be a hit or a miss. Invested heavily in them from mid 90's for 10-12 yrs and some did well while other so called blue chip ones lost us money.
Liquidity is a bonus but not at the risk of losing capital ! In saying that a portfolio of property and some shares is prudent.

 

Started with shares at 16 and property at 29, always been more comfortable with shares although paradoxically have made more capital gains with property. Going forward still prefer shares, higher returns, more liquid, tax benefits and less risk for me. In retirement would like to be close to 100% shares, no IPs.

 

I think it's mostly a lack of understanding, people always seem surprised when you tell them that the share market has matched the property market over the last 30 years, I think a big part of it is that they can all remember the dot.com crash and the GFC and what not but they don't remember the 10 year period where house prices basically didn't move and do remember that 2 year period it doubled in.

There is also obviously the tangible element, if you buy a house as an investment then people perceive it as somewhere you can live as a worst case (ironic really given if you can't afford it when it's rented you sure can't afford to live in it...) and the reality is that being able to see, touch and hear a property ticks off a fear few of the senses, it's real basically.

Ultimately it's horses for courses, shares are more liquid, have better yields and far more varied investment options, property is easier to leverage to higher levels, has some pretty preferential tax treatments, exclusion from many means tests for those it matters for and less volatility in prices. If you do your research you can make a lot on either. It's almost certainly harder to mess up property but that comes with the kicker that because of the leverage involved it's far more costly when you do.

 

Effective long term stock investment requires a level of education and good sense that most are not prepared for or capable of. If you have no idea about Business, and no real interest to learn its not for you. Far easier to buy a house.

 

Appreciate all the great responses guys! This is why I like about this forum. It consists of many members who are very knowledgeable and I'm learning so much from here.

 

True, but…

There’s a lot of misconception about the risk of property. This is due to people not recognising the difference between a house price index and the price of an individual property. While an index is relatively stable as it’s based on millions of homes, a single property is much much more volatile.

We look at the index and are lulled into a sense of security, however as we all know, we only buy individual properties and not the index.

I’ve read some research (don’t remember where) that the price of a house has the same kind of volatility as the share market as a whole. In other terms the risk of owning a house is about the same as owning a share index fund such as STW or VAS.

This is assuming that the house is owned outright. Apply leverage as we all do in PI and it becomes more risky.

 

Found the article:
Aussie Macro Moments: So how risky is your home?

In short:
- Property index less volatile than share index
- Individual property less volatile than individual share
- Individual property as volatile as share index
- Individual, leveraged property more volatile than share index.

 

Shares outperform property by a mile, but only if you are a good TRADER, not an investor. But there are other forms of trading that outperform shares by a mile, because they are more volatile and if you want to make money you need as much volatility as possible.

 

Long term studies claim shares and property both return around same percentage.

But to individual investor 11% return does not translate to 11% profit they can now use to spend or re-invest.

Wealth is build on net return (post tax and holding costs) being compounded over long period of time.

I find the net return on Shares is higher than property. (Happy to be proven wrong but in my own experience holding costs of property can be upto 2%). But reason why people still build significant wealth in property compared to Shares for a given period of time is because of leverage. Remove leverage and compare the net returns on both asset class and you will find shares outperform property IMHO.

Cheers,
Oracle.

 

I'm trying both. I've been investing in shares for a little while now and settled on my first IP in June 2015.

These are the current "returns" to date this financial year:

• Shares ( portfolio of 13 stocks, this financial year to date ) - 19.27% return ( 15.33% gain, 4.17% income )
• IP ( 1 property, from 23 June 2015 to date ) - 4% growth ( excludes "income" )
• PPOR ( previous 12 months ) - 10.6% growth

Best performing stock has 136% return, worst-performing an 8% loss. Some other stocks in my portfolio have returns such as 14%, 62%, 17%, 42%, 9% this financial year. Average dividend is 4% with best dividend at 10%. Generally my stocks are low-risk dividend payers. I also have a couple of ETFs.

The IP is cashflow positive and yield siting at about 5.5%.

PPOR has grown 44% since I moved in February 2014. Thanks Sydney Market!

I'm keeping an open mind on both forms of investment. Will regularly trickle money into shares and periodically shovel money into purchasing IPs.