Today we are settling an old debate. Which is better: property or the stock market?
Spoiler alert: the answer is…. IT DEPENDS!
If you’re looking for pure capital growth, choose the stock market. Why? Because global stock market returns average out at around 7% per year over the last 100 years – and that includes both China and Russia going to zero. Global property markets, on the other hand, returned 4% in the same period.
Simple right? No. Because these numbers do not take into account rental yield. If your property is generating a 6% yield and growing at 4% per year, then you are clearly well above the returns being achieved by the stock market. The trade-offs though are:
(1) liquidity risk – it’s a lot easier to sell a stock than it is a house
(2) maintenance – it’s a lot of time and hassle to maintain a property, unless you sacrifice 10% or so to hire a property management company. Not the case for stocks.
(3) leverage – one of the most powerful reasons to invest in property is the ability to leverage – this means using mortgage financing. If you are able to secure a mortgage on a stable, income-producing asset, you can greatly increase your rate of returns. This is easy with property because markets tend to be quite resilient (not always true though – remember 2008?) but anyway, you wouldn’t want to be doing that with stocks as the risk is too high.
Property vs. Stocks: in conclusion
For quick, easy, hands-off returns – choose stocks. For long-term growth, ideally with leverage, and higher returns but potentially more headaches – property is for you.
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