Property versus shares: their battle for the hearts and money of Australians has been running for decades.
Like a couple of chaotic cage fighters, they will shock you, impress you and sometimes disgust you, but that’s no reason to avoid them.
Property is winning the popularity stakes, largely thanks to the familiarity of bricks and mortar and solid, steady long-term financial gains.
ASX research released this month shows shares have lost popularity in the past decade with the number of direct share owners dropping from 44 per cent to 33 per cent, and indirect share owners — through managed funds — plunging from 32 per cent to 10 per cent.
On the financial front, the referee’s decision in the property-versus-shares fight is not as clear. The winner starts with P, but it’s not property. It’s patience, and you’ll need plenty of that whether you put your money in shares, property or both.
Expect periods of five or 10 years where you get little or no growth. While Sydney house prices have boomed in recent years, prices in cities such as Adelaide and Hobart have gone nowhere, and in the past 12 months have been falling in Perth and Darwin.
On the sharemarket, patience is even more important. Our All Ordinaries index — which measures 500 major companies — is still sitting below where it was eight years ago, and has to climb another 20 per cent to reclaim the record high it reached in November 2007.
Adding dividend income makes sharemarket returns look healthier, as does adding rental income to property price performance. Speaking of income, shares are beating property thanks to their higher yields and their tax benefits.
But just like a cage fight, there will be blood. Aussie share prices more than halved during the GFC. Property prices move in waves, sometimes giant scary ones, and there are growing fears that Sydney’s boom will eventually end in tears.
You can choose to avoid shares and property altogether and stick with super-safe cash, but with today’s low interest rates your money is going backwards after tax and inflation. For many investors, particularly those nearing or in retirement, all options seem scary.
Mixed martial arts world champion Ronda Rousey says fear helps make you stronger: “I’m a courageous person because I’m a scared person” she says.
There are always reasons to be afraid of investing. Greece, China, interest rates and political shenanigans are among the grey clouds we currently face.
Investors in shares and property will experience financial pain at some point, but history has shown that both are winners over the long term.
So, fight fans, let’s cross back to Ronda Rousey for some final words that ring true for investors: “My first injury ever was a broken toe, and my mother made me run laps around the mat for the rest of the night. She said she wanted me to know that even if I was hurt, I was still fine”.