Property vs stock market investment

Property vs the share market

Hindsight can be a double-edged sword. Looking back at the previous decade we all wish we’d purchased some Apple shares or bought into that obscure suburb where property prices have boomed.

When it comes to investments, there’s always going to be outliers and lucky breaks - bets that have paid off big. But that’s not how the broader market works.

Traditionally, bricks and mortar have been regarded as steady, long-term investments, while shares have provided more volatile opportunities.

So how do you compare the two? Which has performed better over the previous decade, and what does that mean for the years ahead? Let’s have a look.

Property values

While the property market has experienced fluctuations in recent years, the previous decade has been good to many investors and property owners.

Overall house prices in Australia surged 52% from 2011 to 2017 before a set of government measures aimed at cooling the market took effect. Despite an associated slump through 2017 to 2019, the decade ended on a high note.

As the numbers below indicate, Sydney, Melbourne and Hobart experienced significant gains. Regional centres have also seen booming markets, with towns like Goulburn, Newcastle, and Bendigo seeing a 35% property value increase over the past decade.

House Prices 2010 and 2019

  2010 Median 2019 Median Percentage Change
Sydney $643,073 $1,079,490 68%
Melbourne $553,693 $855,428 54%
Canberra  $562,415 $738,864 31%
Brisbane  $460,916 $562,847 22%
Adelaide  $453,946 $538,550 19%
Perth  $553,460 $527,107 -5%
Darwin  $616,480 $521,651 -15%
Hobart  $334,084 $482,960 45%

Via Domain

Those are healthy returns for anyone who bought in the right area, at the right time, but Domain Group economist Trent Wiltshire says that those numbers are unlikely to be repeated this decade. As he explains, “Interest rates just can’t do what they did over this decade.” Or to put it another way, the RBA cash rate started the previous decade at 4.5%, it’s now just 0.10%. A record low with nowhere else to go. 

The stock market

The stock market isn’t a single entity. Depending on how you invest, the results can be wildly different, so let’s start with some ballpark figures. The ASX 200, which tracks the leading 200 listed Australian companies, was up 130% over the last decade. This averages out to a compound growth rate of 8.7% per annum.

Casting our net a little wider, the S&P500, a stock market index that measures the performance of 500 large companies listed on the U.S. exchange, has averaged 13.6% p.a. from 2010 to 2020.

But if there’s one investment story that encapsulates the past decade, and the success of the U.S. market, it’s the rise of tech stocks.

Tesla shares are up a staggering 4,125% since the IPO ten years ago. When the company first went public shares were trading at $17 USD, by the middle of 2020 they had eclipsed $1,000 USD. Apple and Microsoft also did very well for investors, even if they couldn't compete with Tesla's numbers.

Apple started the previous decade at around $6 per share and eventually rose above $130 each. Microsoft went from $28 to $217, a rise of 672%. But we should mention that these companies and associated results are outliers.

Which is right for you?

At the end of the day, arguing about property vs. shares is like arguing about cats vs. dogs. While you’ll find diehards on both ends of the spectrum, there isn’t a correct answer. It really comes down to what suits you and your lifestyle.

Property, being a tangible product that you can see (and live in), provides a sense of security that shares don’t. It can be rented out to help offset repayments, and with record low interest rates a mortgage may be more affordable than ever before. Conversely, property still requires considerable savings up-front, and where you buy will have a significant impact on any potential return.

Shares, meanwhile, are easy to come by, and easy to sell. Unlike the housing market, the barriers to entry are virtually non-existent, so anyone can start small, and gradually build a portfolio.

Shares also provide a level of diversity that the property market can’t. An index fund or ETF (Exchange Traded Fund) is a cheap and easy way to build a balanced portfolio, which helps minimise risk by sharing it around, so even if one sector falls flat, others can pick up the slack.

The downside to shares is they can be volatile; some share investments may even prove worthless if the company collapses or goes into receivership.

Invest according to your goals

When it comes to investing, no two people are the same, and your personal situation and goals will determine what an appropriate investment might be.

So, think about your goals, your timeframe, and your finances. Do you have some spare cash in a bank account that might see a better return in the stock market? Are you looking for a source of income in retirement? How much time do you have and how involved do you want to be?

Thinking about your goals can help you narrow down the options. And if you’re looking for external advice, our financial planners can help you better understand your options.

Ultimately, most people are looking for a diversified investment mix that can weather the various economic ups and downs on the horizon.

And speaking of diversification, don’t forget about your super. Most people consider it a part of any well-balanced investment mix. Our default Aggressive option has averaged 9% p.a. over the past decade. The Balanced option has delivered just shy of 8% p.a.

Super can provide a third investment pillar between property and shares. In the process, it allows access to a diversified mix of investments which can help offset broader market volatility.

Looking back while investing in the future

Past performance is not an indicator of future performance. We’re obliged to say that in our disclaimers, but it’s particularly true when it comes to comparing two different investments.

Simply stated, no one knows what the next decade holds, and what impact it may have on investments and returns.

Our financial planners can help you plan for the future and build a diversified investment mix. You can book an appointment online and the first meeting comes at no additional charge.

Speak to a financial planner

A qualified financial planner can help you understand your investment options. 

Any figures quoted are correct at the time of writing but may be subject to change.

Authorised by Togethr Trustees Pty Ltd (ABN 64 006 964 049; AFSL 246383) ('Trustee') the trustee of the Equipsuper Superannuation Fund (ABN 33 813 823 017). Catholic Super is a division of the Equipsuper Superannuation Fund (ABN 33 813 823 017). Financial advice services may be provided to members by the trustee's related entity. 

Togethr Financial Planning Pty Ltd (ABN 84 124 491 078; AFSL 455010). The information contained herein is general information only. It has been prepared without taking into account your personal investment objectives, financial situation, or needs. It is not intended to be, and should not be, construed in any way as investment, legal or financial advice. Please consider your personal position, objectives, and requirements before taking any action. Past performance is not a reliable indicator of future performance.

© 2020 Togethr Trustees Pty Ltd. For further information please our contact our Service Centre on 1300 655 002 or visit our website: csf.com.au.