This article, by Justin Baiocchi, was originally published in The Northern Daily Leader on 14 March 2015.
One of the common questions I get asked in my job is a seemingly straightforward one – should I invest in shares or property? It sounds like a simple decision to make, doesn’t it? In truth however, there is no easy answer to that question. The only way to answer definitively is to know in advance how the property market and the share market are going to perform in the future. And if you know that information, you must have a DeLorean time machine parked in your garage and your name is Emmett Brown. When comparing property with shares it’s easier to highlight their differences, rather than their similarities. For many people, the concept of owning something tangible that they can see and touch is important. Yes, a shareholder in Harvey Norman does technically own a (very) small part of the business, but try settling down with a beer and popcorn in front of one of their display TVs and you’ll soon find out just how far your ownership of the business stretches.
Those who prefer to invest in property will point out the lack of volatility in the value of their investment when compared to the stock market. Unlike the stock market, where the value of your investment in a company can fluctuate literally every second, property investors draw comfort from the fact that prices tend to be stable, at least when compared to the stock market. Unfortunately this perception is not quite true. Imagine you owned an investment property and every time a car drove past the building the driver yelled out a figure that they would be prepared to pay to buy your property. You might get offers of $400,000 or $450,000 or even $350,000 and if the house is on a busy road the yelled-out offers might come every few seconds or so. Of course, you don’t have to accept the offers – you might have a value in mind for the property which is very different from the numbers being yelled out by passing drivers. Unless you needed to sell immediately and you would have to accept the very next offer that came along, even if it was below your own valuation.
Can you see the similarity with the stock market? The changing share prices on the stock market are just like the offers yelled out by the passing drivers – there’s no need to accept them unless you have to sell right there and then. In truth, property prices can be just as volatile as share prices, it’s just that we rarely bother to find out what the property is worth, unlike the stock market where we see it every day on the evening news.