Finance Finance News Where should you be investing your money?

Where should you be investing your money?

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Whether to invest in property or shares has been a long-argued proposition across many dining tables in Australia.

It’s no secret that Australians love property. Residential house prices have skyrocketed in recent years and with continued record low interest rates, little sign that that trend will slow. Then, there’s the appeal of huge wins on the stock market. So, property or shares? Let’s pick a winner.

Long-term returns

Any sensible investor should start with research, and they’d be forgiven for getting stuck in a backlog of conflicting reports.

As an example, this ASX report reveals that in the 10 years to December 2013, Australian shares had a return of 9.2 per cent, with residential investment property returning 6.1 per cent. Global shares returned 8.2 per cent.

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A win for the stock market it would seem. However, over the 20 years to December 2013, Australian shares returned 8.7 per cent, while residential property returned 9.9 per cent.

Regardless of what you buy, take into account that a high quality asset will generally appreciate over the long-term, whether that be a house or a business.

Prospecting property

Some Australian superfunds have reported double digit returns on investment portfolios

The Reserve Bank made headlines last year for its assertion that some Australians would, in fact, be better off renting than buying in the current property market. It’s an assertion backed by advocates of shares such as IBISWorld founder and chairman Phil Ruthven.

As an investor, remember that it’s worth having at least 20 per cent deposit for a property to minimise your own risk. That will help protect you against market fluctuations; a general rule in property is that you will likely make some profit if you hold for the long-term.

Scouting shares

One major benefit of shares over property is the instant ability to react in real time to the market. This can also be its curse, as emotions often win out over logic.

There’s the potential for huge gains (and losses). For example, you’d still be celebrating if you bought into Fortescue Metals in 2001, when it was trading at 1 cent and sold at its peak in 2008 at more than $12 a share. Even if you held on, you’d still be profiting with shares currently about $2 and you would have benefited from dividends. Generally, over time you’ll make money on the stock market.

Everything’s super

Most Australian superannuation funds have a mixed portfolio of Australian shares, global shares and property and, in the past few years, some funds have been reporting double digit returns. It’s the best of both worlds.

Take advantage of the financial advice offered by industry super funds to maximise your retirement savings..

While most investments carry some tax breaks, Australians can contribute money towards their superannuation and they’ll pay just 15 per cent tax on amounts of up to $30,000 per year (this includes a combination of compulsory employer SG contributions, and salary sacrifice arrangements. Read more at the ATO.

You can have it all…

The best portfolio is a diversified one. Investing in property or the stock market in isolation can put you at a disadvantage. The smart plan, if you can afford it, is to do it all. Buy your own home, put extra cash into your superannuation and build a stock portfolio.

This information is general in nature and does not constitute investment advice. Please seek specific advice for your circumstances. 

This content was proudly sponsored by CBUS: an Industry Super Fund.
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