It is the question that investors often ponder the most – should they buy shares or property to create future wealth?
Of course, the answer depends on your financial goals as well as your risk profiles.
However, time and time again, property has come out on top when it comes to a long-term wealth creation strategy.
One of the main reasons for this is the ability to leverage funds to purchase an asset that stands a strong chance of increasing in value steadily for decades.
On the other hand, with shares, investors may earn some returns over the years – and even see their portfolio grow in value – but the end result is usually a poor cousin to what property investment can produce due to the difficulty inn leveraging.
High vs. low risk
In our book, A Military Guide To Property Investing, we outline how both Tori and I dabbled in share investing in our early days, but we realised there were more powerful ways to grow wealth.
Sure, shares are a liquid investment that can be bought and sold quickly, there is a lower cost of entry than property, and you can often research companies quite easily via publicly available information.
However, we never liked the fact that you fundamentally just get what you put down. That is, if you invest $65,000 in shares, you only receive the same value in return.
Plus, we found that share investing was highly volatile, which isn’t really ideal for anyone who would prefer to sleep well at night.
Share prices have a tendency to jump up and down, depending on a huge number of variables – all of which are pretty much outside of your control as one of the many people who may own a really small slice of a particular company.
There are plenty of examples of share prices that have soared one year and fallen by more than that percentage the next.
Likewise, we often hear of people lamenting they fact they didn’t invest in Facebook, Google, or Apple back in the day. If only they did, they would be seemingly rich!
The truth of the matter is that those stocks were considered high-risk at the time, so it was not far off pure speculation for those investors who were lucky enough – and had the nerves – to ride out the volatility over the years that followed.
Sure and steady
Conversely, property investment is considered a relatively low-risk strategy.
By purchasing strategically and holding for the medium- to long-term, investors give themselves the very best chance of improving their financial futures.
Unlike shares, property investors can also use other people’s money (that is, the banks) to buy a property for a fraction of its current price and an even smaller fraction of its future value.
They use good debt (which produces income and capital growth) to help purchase an asset, plus they can achieve capital growth on the property’s value, rather than just the deposit that they initially contributed – which is the opposite of shares.
Let’s use a $65,000 deposit on a $650,000 property as an example to show the potentially different outcomes.
We’ve used 10 per cent annual compounding growth for shares, but only seven per cent for the property as it’s a much more stable and less volatile asset class to invest in.
As you can see, after a decade, the property investor has potentially achieved a capital gain of nearly $630,000 – all from a starting personal contribution of just $65,000.
The share investor has ended up with only $103,000 in value uplift in comparison – and this is presuming that the shares they have purchased are in a company that is still around 10 years’ after they purchased them.
We’re not here to advise anyone on which is the best strategy for them, because it really is an individual choice.
But it’s always a good idea to have all the information – including potential differences in returns – so you can make an informed decision about which asset class might suit you best as an informed investor.
| Asset | Property | Shares |
| Personal contribution | $65,000 | $65,000 |
| Loan value | $585,000 | – |
| Asset value (current) | $650,000 | $65,000 |
| Annual growth compounding | 7% | 10% |
| Asset value (in 10 years) |
$1,278,647 | $168,594 |
| Capital gain | $628,647 | $103,594 |
If you’ve been thinking about investing in property, you need to have the experts at Atlas Property Group on your side. Our investing markets have already grown by over 15% in 2021. We are constantly analysing new markets that our clients are able to take advantage of as they progress towards their own large and fantastic portfolios.
