Should You Invest in Shares or Property?
Ever been caught in that endless debate between property investors and share market enthusiasts?
You know, the one – where property diehards swear bricks and mortar are unbeatable while share market fans tout the power of dividends and liquidity. Here’s what most people don’t realise about this age-old argument. It’s the wrong debate entirely.
The most intelligent investors aren’t choosing between shares and property. They’re strategically using both. At Freeman Financial Group, our favourite answer to the shares vs property question is simple: both.
If you’re serious about financial freedom, you need property AND shares in your wealth-building arsenal. Let me show you why this combo approach crushes the competition every time.
The Liquidity Factor: When Quick Cash Matters
Let’s start with one of the most significant differences between these investment types – liquidity.
Shares give you something property simply can’t match. You can sell them lightning-fast and have cash in your account within days. Even if you’ve got managed funds, you’re only looking at a week or two to access your money. But here’s what sets shares apart – they’re divisible. Need $10,000 for an emergency? No problem. You can sell that amount from your share portfolio without touching the rest.
Property plays by different rules entirely. Selling a property takes time – we’re talking weeks to months from decision to settlement. And you can’t sell the back ensuite for quick cash when you need it. As I tell my clients – you can’t eat bricks. You can’t nibble on a window when you need some extra funds. It’s all or nothing with property, and that lack of flexibility can be a significant drawback if it’s your only investment.
The Risk Reality: Understanding What You’re Really Facing
Both shares and property carry risk – don’t let anyone tell you otherwise. The difference is in how that risk presents itself.
With shares, you’re looking at market risk and volatility that’s in your face daily. Every market movement gets reported, analysed, and sometimes blown out of proportion. That constant visibility can be psychologically challenging for some investors.
Property carries market risk, too, but here’s the psychological trick – the volatility is less visible. Properties aren’t valued daily. You don’t get a push notification every time your home’s theoretical value drops 2%. But make no mistake – if we put a Ray White auction hammer out the front of your house and valued it daily, I promise you the graph would look remarkably similar to the share market. You just don’t see it happening in real-time. And you don’t have news presenters at the end of the weather report talking about how the property market crashed or skyrocketed today. Out of sight, out of mind – but the risk is still very much there.
Diversification: Spreading Your Bets Wisely
Diversification is investment strategy 101, and here’s where shares have a clear advantage.
With shares, you can spread your money across different:
- Companies
- Industries
- Countries
- Asset classes
Even with a relatively modest investment, you can own pieces of hundreds of businesses spanning the globe.
Property makes diversification harder. Owning multiple properties in different locations is challenging unless you’re exceptionally wealthy. Most property investors have significant concentration risk – too much of their wealth is tied to specific locations or property types.
But property has its advantage – it’s more tangible and often easier to manage mentally because you deal with fewer assets. There’s something psychologically reassuring about seeing and touching your investment physically.
The Maintenance and Management Reality
Both investment types require different levels of ongoing effort and cost.
With shares, you must do significant research upfront to select quality investments. You’ll need ongoing research to stay informed about your holdings, but the maintenance costs are minimal. Once you buy them, you mostly pay brokerage fees when you eventually sell.
Property flips this equation. You still need thorough initial and likely less ongoing research since property fundamentals change more slowly than company performance. But the maintenance and management aspects are substantial:
- Ongoing repair costs
- Property management fees (if you use an agent)
- Dealing with tenant issues
- Insurance costs
- Council rates and water bills
- Potential vacancy periods
These ongoing costs and management headaches are the hidden burdens that property spruikers rarely emphasise.
The Tax Tale: Complex But Crucial
The tax implications of both investment types are where things get interesting.
With shares, you’re looking at:
- Capital gains tax when you sell at a profit
- Franking credits on dividends (a massive advantage many investors overlook)
- The two-dimensional return of capital growth plus dividend income
Those franking credits deserve special attention. When Australian companies pay dividends, they’ve typically already paid tax on that income. As a shareholder, you get a credit for that pre-paid tax – essentially avoiding double taxation. This creates a significant tax advantage that can dramatically improve your after-tax returns from shares.
Property has its tax advantages:
- Depreciation benefits
- Deductions for expenses and interest
- The ability to negatively gear (use losses to offset other income)
- The ability to leverage more aggressively (banks will typically lend more against property)
Property’s larger deductions for investors paying significant tax can create substantial short-term tax benefits while building long-term wealth.
Borrowing Power: The Leverage Factor
Here’s where property truly shines – leverage.
Banks are simply more comfortable with property as security. This means you can typically borrow up to 80-90% of a property’s value, while share loans (margin loans) usually cap at around 70% for blue-chip shares and often much less for others. This leverage amplifies your returns when property prices rise.
A 10% growth on a $1 million property purchased with a 20% deposit translates to a 50% return on your invested capital (minus costs). That same 10% growth on shares purchased outright only delivers a 10% return.
Of course, leverage works both ways – it also amplifies your losses when markets fall.
Why The Powerful Combo Works
Now that we’ve broken down the advantages and disadvantages of both investment types, let’s talk about why combining them creates such a powerful wealth-building strategy:
1. Complementary Strengths
Shares provide liquidity and easy diversification, while property offers leverage and tangibility. By holding both, you get the best of both worlds while minimising their respective weaknesses.
2. Different Economic Responses
Shares and property sometimes respond differently to economic conditions. When interest rates fall, the property might boom while specific share sectors struggle – and vice versa. This non-correlation can reduce your overall portfolio volatility.
3. Life Stage Flexibility
Different life stages require different investment attributes:
- Building wealth: Property’s leverage can accelerate growth
- Approaching retirement: Shares’ divisibility makes planning easier
- In retirement: A combination provides both growth and accessible income
4. Tax Optimisation
The different tax treatments allow for strategic planning that can significantly improve your after-tax returns. Using both investment types gives you more levers to pull in your tax planning.
The Real-World Approach
At Freeman Financial Group, we typically recommend clients build wealth with both shares and property, but in a strategic sequence:
- Establish your home base (primary residence)
- Build an initial share portfolio for liquidity and diversification
- Consider investment property for leverage and tax benefits
- Continue expanding your share portfolio for future income flexibility
- Reassess and rebalance as you approach retirement
This approach provides the property’s growth potential while ensuring you maintain financial flexibility through your share portfolio.
Common Mistakes to Avoid
When investing in both shares and property, watch out for these pitfalls:
1. Over-Leveraging
Just because you can borrow heavily for property doesn’t mean you should max out your borrowing capacity. Market downturns can be devastating if you’re carrying too much debt.
2. Neglecting Diversification Within Each Asset Class
Even when you have both shares and property, ensure you’re appropriately diversified within each:
- For shares: Spread across industries, company sizes, and geographies
- For property: Consider different locations, property types, and tenant demographics
3. Forgetting the Liquidity Buffer
Always maintain adequate liquid assets (cash and readily sellable shares) to cover emergencies and opportunities. This prevents forced property sales in unfavourable markets.
4. Ignoring the Total Portfolio View
Assess your wealth strategy holistically rather than treating shares and property as completely separate investments. They should work together, not compete, in your financial plan.
The Bottom Line
The shares versus property debate misses the point entirely. It’s not about which is better – it’s about how they work together to create a resilient wealth strategy.
The property provides leverage, tangibility, and significant tax benefits. Shares deliver liquidity, divisibility, and effortless diversification. Together, they form the backbone of the most successful wealth-building strategies we see.
So next time someone asks you which is better – shares or property – you know the answer.
Both. Definitely both.
Book a Free Discovery Call with a Freeman Financial Advisor to develop your personalised strategy using both shares and property to build lasting wealth.
