The Age-Old Question: Property Or Stock?
In the pursuit of financial security – either for themselves or in order to create a nest egg for their children – everyday investors have long sought the answer to the age-old question: where to invest to combine security and return on investment?
In the search for wealth, there are no guarantees or quick-fixes, and no investment is risk-free. Instead, it’s a decision that requires a great deal of research and understanding, but for most, it boils down to a choice between property or stocks.
Ultimately, the direction you choose comes down to what you are looking to achieve from your investment. Are you looking to turn a relatively quick profit or are you in it for the long haul and looking for a stable, slow-growing return?
Property investment is a long-term game
As a general rule, most properties increase in value as time goes on, but do so at a much slower pace than the stock market. Given the expense associated with the purchase of a property – stamp duty, agent fees and conveyancing or legal fees – it’s not usually an investment that you’ll want to turn over quickly.
While the value of your investment is more likely to grow at a stable pace, you do have the added advantage of being able to renovate or change the property in order to increase its value. Additionally, investing in a rental property can ensure you generate a regular income, with the promise of a lump sum at the end when you sell.
In terms of forecasting and knowing the value of your investment, the property market is unique. Its low volatility makes a property a more attractive investment for many people, given that you generally have time to react and respond to property market changes.
Understanding the volatility of stocks
Investment in the stock market can seem like an expensive gamble, but its one that offers significant opportunity for return on investment. For many people, it’s not actually about making money quickly, but more about selectively choosing to invest in companies which are likely to do well in the long term.
Simply put, stocks involve investing your equity to take part-ownership of a company and, in return, receiving a portion of the company’s earnings relative to the amount of stock you own. You have two options when it comes to purchasing stocks – common stocks, which gives you voting rights in the company, but without the dividends, or preferred stocks, which provide dividends, but without the voting rights.
Generally, a growing economy means greater success for the businesses within that economy, which is when stocks typically offer the biggest return on investment. Investing in a well-placed company means you take advantage of the growing economy and as the company enjoys a boom period, your investment generates greater returns.
Where entry into the property market can be costly and time-consuming, the process of purchasing stocks can be significantly easier. You can choose to use the services of a broker, or alternatively, an account on the stock market allows you to purchase directly yourself. While typically more volatile and susceptible to change, you are able to buy and sell shares within a matter of minutes – which means cashing out at any point.
Comparing the two
For many, the property market offers a level of control that the stock market does not. With stocks, you’re reliant on the company that you invest in to make the right moves and adapt to evolving markets – and if it doesn’t your investment suffers. With a property, any change made to your investment comes at your own cost, but more importantly is your own decision.
The investment that works best for you will depend entirely on your own circumstances. While the stock market requires faster reaction times and can be more volatile, it also offers the opportunity to make money more quickly.
While the property market moves more slowly, it also offers the opportunity to receive a regular income and long-term stability. Both options require significant research in the lead up to purchase and carry different elements of risk. We do however, know for sure, that shares prices can hit $0, but property cannot. Your choice depends on how much risk you want to take on.