The great Australian dream of property ownership might be facing some roadblocks. Let's explore why shares could be the driving force behind your investment success:
Lower Entry Point
Getting on the property ladder in Melbourne can be a daunting task. According to realestate.com.au, the median house price currently sits around a staggering $922,000. That's a significant deposit to save, especially for first-time investors. Shares, on the other hand, allow you to start small. With some online platforms, you can begin investing with just a few hundred dollars.
Increased Liquidity
Life can be unpredictable. If you need to access your cash quickly, shares are the clear winner. Unlike property, which can take months to sell, shares can be bought and sold on the ASX within days (T + 2). This flexibility is crucial for unforeseen circumstances.
Diversification Powerhouse
Spreading your risk is key to a secure investment strategy. Shares allow you to easily diversify across a wider range of companies and industries compared to a single property. This helps mitigate risk from a downturn in a specific sector, something to consider in a changing market.
Growth Potential
A 2015 study by the Federal Reserve of San Francisco, titled "The Rate of Return on Everything"1 analysed nearly 150 years of data to compare long-term returns across different investment options and regions. The research found that Australian housing delivered a real return (adjusted for inflation) of 6.37% per year on average over the entire period. Shares, on the other hand, offered a higher average annual return of 7.81%.
Passive Income Stream
Ask anyone who owns one, investment properties come with the burden of ongoing maintenance, repairs, and potentially troublesome tenants. Shares can generate passive income through dividends, a portion of a company's profits paid out to you. Imagine collecting income without the hassle of clogged drains or late-night repairs!
Tax Advantages
Shares can offer certain tax benefits. Dividends may come with franking credits, which can reduce your tax liability. Dependent on how your assets are owned, capital gains tax on shares held for more than a year may be discounted compared to property sales. In addition, Victorian State Government initiatives to pay down the debt incurred during the COVID lockdowns has resulted in increases in both Land Tax and Stamp Duty, meaning that Melburnians are now paying the highest Stamp Duty on property purchases in the country2.
Global Market Access
The Australian stock market (ASX) is just the beginning. Online platforms allow you to invest in companies worldwide, giving you exposure to exciting international markets and the potential for higher returns. Imagine investing in cutting-edge tech companies in the US or established giants in Europe – all from your computer!
Know Your Course
It's important to remember that shares are generally considered a more volatile investment than property. The stock market can be subject to swings and dips, so a longer investment horizon (ideally 5+ years) is recommended.
Teamwork Makes the Dream Work
Shares and property don't have to be rivals. A balanced portfolio that incorporates both can be a powerful wealth-building strategy.
Do Your Research
Before diving in, conduct thorough research on individual companies and the broader market. Consider seeking professional financial advice to ensure shares align with your investment goals and risk tolerance.
The Final Word
Shares offer a compelling alternative to traditional property investment in Australia, particularly for those seeking affordability, flexibility, and the potential for high growth. By carefully considering your needs, conducting your research, and understanding the property market, you can unlock the exciting world of share ownership and build a brighter financial future.
1. The Federal Reserve Bank of San Francisco (2015), The Rate Return of Everything. Page 22.
2. e61 Institute (2024), Stepped on by Stamp Duty.
Jahanne is a Senior Investment Adviser who specialises in providing a holistic approach to wealth advice. Contact Jahanne today to discuss your investment strategy via [email protected] or 03 9947 4156.
