Stock vs Property

Stock vs Property
11-04-2018 |
Australians have spent the last few months eyeing their share portfolios as the volatility of Wall Street crept into the ASX.

Over many decades, equities have been a proven performer for Australians. But inherent risks can mean losses just as easily transpire. As an example, in early February, about $70 billion was wiped from the All Ordinaries – the top 500 companies listed on the Australian Securities Exchange - in the space of three days.

Amongst the suite of investment classes – which continue to diversify through the profile of options like cryptocurrencies – real estate continues to be a cornerstone. As opposed to other options, it’s less exposed to daily or weekly fluctuations.

As an investment class, real estate has a tremendous profile, simply because an overwhelming percentage of people have had some form of relationship with property: most people have either been sellers, buyers or tenants at some point in their lives.

Twenty years ago, the All Ords Index was 2894. In mid-February, the Index was around 6147, representing an average gain over time of 112%. Companies on the All Ords are, by their nature, solid, long-term performers that avoid fluctuations. While most investors will include some members of the All Ords in their wealth management strategies, they’ll supplement it with ‘higher risk’ performers which can accelerate returns.

At the end of last year, the median national house price was $535,000, representing an increase of 285% over two decades – well above the performance of equities. Also, real estate investors look for a combination of capital gains and yield in their investments. And if a property can be positively geared, the investor is placed in a great position.

It’s the safety of real estate that allows it to really stand out from other investment classes. The national median house price has only ventured into negative territory three times in the past 20 years. In contrast, equities have made negative 12-month gains on nine occasions.