Investing in Property vs Investing in Shares: Pros, Cons, and the Long-Term Outlook

Investing in Property vs Investing in Shares: Pros, Cons, and the Long-Term Outlook

Investing is all about putting your money to work to achieve long-term financial goals. But when it comes to investing, there are many options available, and choosing the right one can be challenging. Two popular investment choices in Australia are investing in property and investing in shares. In this article, we’ll explore the pros and cons of each, as well as the risks and rewards of borrowing to invest.

Investing in Property

Investing in property has long been a favourite of Australian investors. Property investing provides a tangible asset that can provide capital growth and rental income over the long term. The pros of investing in property include:

Pros of Investing in Property

  1. Capital Growth Potential: Historically, Australian property values have increased over the long-term, providing investors with capital growth.
  2. Rental Income: Rental income can provide an ongoing income stream for investors, helping to offset the costs of the investment.
  3. Tangible Asset: Property is a tangible asset that provides investors with a sense of security, and investors can add value to their property through renovations or upgrades.


However, investing in property has some drawbacks as well:

Cons of Investing in Property

  1. High Entry Costs: The initial costs of purchasing property, including stamp duty, legal fees, and deposit requirements, can be significant.
  2. Property Management: Managing a property can be time-consuming and costly, particularly if there are long periods of vacancy or significant repairs required.
  3. Lack of Diversification: Investing in property means putting all your eggs in one basket, leaving you exposed to the property market’s fluctuations.
  4. Unable to compound income: Other than putting in capital improvements it is impossible to reinvest the rental income each year.


Investing in Shares

Investing in shares involves buying a portion of ownership in a company. Shares can be purchased directly or through managed funds, which provide a diversified portfolio of shares. The pros of investing in shares include:

Pros of Investing in Shares

  1. Liquidity: Shares are highly liquid and can be bought and sold easily, allowing investors to quickly respond to market changes.
  2. Diversification: Investing in a diversified portfolio of shares can spread the risk of investing across many different companies and sectors.
  3. Access to Professional Management: Managed funds provide access to professional investment managers who can provide guidance and expertise.
  4. Ability to Reinvest Dividends: generally you can elect to buy more shares from the dividends you receive each year so the income you earn will then earn more income next year, otherwise known as compounding returns which over the long term will have a significant impact on your portfolio balance. 


However, investing in shares also has some drawbacks:

Cons of Investing in Shares

  1. Volatility: Share prices can be highly volatile and are influenced by many factors, including economic conditions and company performance.
  2. Lack of Tangibility: Shares are intangible assets, which can make them feel less secure to some investors.
  3. Complexity: Understanding the stock market and making informed investment decisions requires a certain level of financial literacy and investment knowledge.


Borrowing to Invest

Borrowing to invest is another option that investors may consider. By borrowing money to invest, investors can increase their potential returns, as the amount of money invested is greater than their initial capital. However, borrowing to invest also comes with risks, and investors should approach it with caution.

Pros of Borrowing to Invest:

  1. Increased Returns: By borrowing money to invest, investors can amplify their potential returns, as any gains are based on the total investment, including the borrowed funds.
  2. Diversification: Borrowing to invest can also provide investors with the ability to diversify their portfolio, spreading the risk across different investments.
  3. Tax Benefits: Depending on the investor’s circumstances, borrowing to invest can provide tax benefits, such as deductions on interest payments.


Cons of Borrowing to Invest:

  1. Increased Risk: Borrowing to invest also increases the risk, as any losses are also amplified, potentially leading to greater financial losses.
  2. Interest Costs: Borrowing money comes with interest costs, which can eat into any potential gains and add significant financial pressure.
  3. Margin Calls: Borrowing to invest also involves taking out a margin loan, which requires investors to maintain a certain level of equity in their investment portfolio. If the value of the portfolio falls below this level, investors may receive a margin call, requiring them to repay part of the loan or add more collateral to the loan. In practice, this could mean crystalising your losses at a low point if you needed to sell.


When considering borrowing to invest, investors should carefully weigh the potential rewards against the risks involved.


Both investing in property and investing in shares have their pros and cons, and the right choice will depend on an individual’s financial goals, risk tolerance, and personal circumstances. Borrowing to invest can amplify potential returns, but it also comes with increased risks and financial pressures.  Seeking the advice of a financial professional can help investors make informed investment decisions and navigate the complex world of investing.


Next Steps

To find out more about how a financial adviser can help, speak to us to get you moving in the right direction.


Important information and disclaimer

The information provided in this document is general information only and does not constitute personal advice. It has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser. From time to time we may send you informative updates and details of the range of services we can provide.

FinPeak Advisers ABN 20 412 206 738 is a Corporate Authorised Representative No. 1249766 of Spark Advisers Australia Pty Ltd ABN 34 122 486 935 AFSL No. 458254 (a subsidiary of Spark FG ABN 15 621 553 786)

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