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Ive been pondering for some time the Shares versus Property argument. I appreciate there are a multitude of figures on this but I find it very sporadic in the actuals when you review.. As someone who was largely stock market invested and is now moving into property id welcome thoughts:. Mine for what they are worth are as below:
Shares - The argument for:
Instant hassle free purchase with ability to sell in seconds. Zero tax if under Isa limits and zero effort to own. Solid yields if timing correct.
Share - The argument against:
No way of actioning due diligence on individual companies in the main without accounting skills, even then its not always possible (Carillion, Pat Val) Only safe way is to buy the market or a fund or many companies. 100% investment needed.ie no loan unless in high risk products. Once every cycle ability to lose 50% or more in a year or so almost a given but generally comes back
Property - The argument for:
Simple to understand, Low risk if bought well, ie survey, insured etc. Gearing and leverage can increase gains, Ability to select individual cases out of market with low risk. Very few examples of properties not rising over a significant time period and very few people wiped out if bought in cash.
Property - The argument against:
Regulation, hard to move in and out of, Gearing and leverage can increase losses, Requires active effort to manage.
Would welcome thoughts or pondering. This is genuinally not a trolling post as im pretty frequently having this argument with myself!!
I dont think its either or ???
why not own both spread risk and take the good and the bad with both
Learn Change and Adapt ?????
All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.
It would be very interesting to see a yield comparison of the 2 investment types for the last 10 years.
property should win - but taxed higher in general
You can’t really compare the two. One persons share holding is different to the next, same as your property yield is different to mine. I guess you could measure the returns of the FTSE 100 v national HPI but that doesn’t tell you anything about the potential of individual asset classes.
Some of my stocks have quadrupled in 5 years. But If you look at the FTSE 100 (ex dividend), it is trading at a very similar level as 18 yrs ago! Similar to houses. My northern property only recovered from 2008/09 about 3 years ago. One of my southern properties barely faltered and has gone up 60-70% since.
this is an interesting article with a spreadsheet you can download to try out various scenarios
It has always been stocks and funds for me. However, I have now got kids and have stopped working. As such, the inconsistency of stocks don’t fully match my desire for consistent, monthly yield.I have now partially diversified into property so that I can get a regular income that can cover all living expenses. The stock yield and HPI are the icing.
At the end of the day I look at the property v shares question with another question. Because shares produce dividends (most of the time!) and property produces rental returns (less interest costs and maintenance etc).
Which one produces the best return on capital employed consistently over time?
The answer for me is property and I accept for others it maybe different depending on your goals and strategy.
My portfolio as returned an average over the last 5 years of 25% per year on my original investment. This is income/net profit only and does not take into account capital growth, which is a bonus, but I am not selling so will never see this.
Am I going to get a relatively consistent return on my money with shares that can compete with my 25%? I don't think so, but if there is anyone that can persuade me differently then I am willing to listen.
Just to clarify: I self manage my small portfolio, so there is a small amount of time effort involved over the year. But this is not a lot. Also, all my portfolio are on capital and repayment mortgages, which means that my % return/net profit each year will increase because the capital is being paid down therefore reducing my interest costs.
It is a combination of the 2 that we should be looking at , I think .
The plus for property is the gearing ( mortgage )
the plus for Stocks is the ease of holding them .
with regards to returns,
there are multiple options that have returned a consistent 15 % or more, year on year, for more than 10 years ... and this is free of tax if inside an ISA or SIPP.
with property, there is tax to consider, either personal or corporation and the ROI at least on mine, after tax , is lesser than the above ( 45% tax bracket on some - but later ones in an SPV and so corporation tax )
also , I just get the feeling that the government doesn't want landlords ( all the punitive taxes and new legislation ) .
The problem with stocks ( its a nice problem to have ) is that ISA allows 20 K per year and further money needs to go elsewhere ( can use a non isa account , but I find it hard to keep an account of the CGT )
net result for me - as I am time poor -
stocks ( Mutual funds with good returns) first and spare goes into increasing the Property portfolio as and when enough money accumulates in the bank .
I agree with your comments
I just get the feeling that the government doesn't want landlords ( all the punitive taxes and new legislation )
Spot on we are not seen as a housing provider we are see as the total opposite - we remove property the govt would rather see in the hands of owners
We are a bit like Diesel cars - Can't be done away with yet, but over time there will be less Diesel l cars
Not to be encouraged for sure
All fair points.
Care to share those 15% return over 10 year stocks/funds? They would be handy to go into my SIPP.