There has been a long-standing debate in the investment world, as to whether shares or property is the better choice. To help you decide which is your investment match, Chief Operations Officer at investment advisory platform Proadviser, Schuman Zhang reveals the three things you should consider before making a decision between the two:
Your investment timeframe will be critical for determining what you invest in and in what proportions. In Australian markets, property values tend to trend upwards over the longer term, doubling in value every 7-9 years. The share market on the other hand, has the ability to make sudden gains and losses over much shorter time periods.
While daily price fluctuations are the norm in the stock market, the property markets tend to be much more stable. Since property is less liquid, people usually hold onto their property investments, ride out market downturns and wait for prices to go up before selling. This means that generally speaking shares offer more liquidity and potential movement while property offers stability.
If you have a long investment timeframe, property investment may be a good option for stable capital growth. If you want to invest with a shorter timeframe in mind, the share market may be a good option since it has a much lower entry point and is therefore more easily accessible.
2. Risk Tolerance
Your risk tolerance level is another critical consideration as to what you should invest in. Both the share market and the property market present the investor with varying degrees of risk. You could potentially invest in safe shares and safe property, or risky shares and risky property. Your level of comfort with risk should also directly correlate with your level of knowledge in each investment asset class.
If you have more knowledge on the stock market, you may find shares more attractive since you can understand and quantify the risk. Conversely, if you tend to know more about property markets, property then becomes a safer and better option. Also, deciding whether you are an active or passive investor will help you determine the appropriate risk profile and whether shares or property would be your next best move.
One of the golden rules in investing is to make sure your portfolio is adequately diversified. The idea of diversification is to create a safer, less volatile and better performing investment portfolio. As such, it makes sense to consider what you currently own and what you ‘need’ to own in order to achieve the right amount of diversification.
To sum it all up, both shares and property can be sound investments for your portfolio. However, to determine whether your next investment should be shares or property, it is necessary to consider your level of risk tolerance, your investment timeframe and your current level of diversification.
While there is no definite quick and easy answer to those questions, new online investment platforms like Proadvisor have helped investors to determine an optimal investment portfolio based on your personal risk tolerance, knowledge, time frame and investment goals. The key is to keep learning because when it comes to investing – knowledge is king!