Property or Equities - Where Should You Invest?

By: Joe Daly,
Daly Investment Planning Ltd,
Ballinrobe,
Co Mayo. ( 094 952-0921) or e-mail: info@dip.ie )

The success stories from both property and Equity investors can often leave us wondering which is the best bet. Outlined below are the two asset classes and some of their individual quirks.

Growth
In terms of growth, both seem to offer the investor good value over the long term. Over a ten-year period certain property has grown on average by 6%-9% compared to shares, which returned 6.11%. The major argument for property is that being able to borrow against it greatly enhances its return. This is certainly true when you consider lending institutions are/may be prepared to lend up to 75% of a commercial property and 92% of a residential one. When this is factored in, property does show a greater return against shares.

Access to Capital
One area that property tends to suffer is in relation to accessibility of capital. Shares can usually be sold quite quickly, with the owner getting his money within a number of days. If share prices are down however, investors may not want to sell their shares to avoid making a loss or reduced gain. Gaining access to the capital sum invested in an investment property can be much more difficult. A vendor can suffer a similar fate to a share investor in terms of market timing. In addition to this it can take a period of months and sometimes a year to get the price required to make it worthwhile for the investor to sell.

Security
From the point of view of security many of us have the view that you cannot go wrong with bricks and mortar. There are many property investors that would disagree with this flawed ethos. Most of us know someone that suffered from negative equity in the late 80's and as of today (Aug '08) this looks like happening again. This is not to say that the same will ever happen here but it is important to understand the risks. Volatility in the equity market in the year 2000 and in the last 9 months demonstrated very well the lack of security in direct equity investment.

Costs and Charges
The costs incurred in making a share purchase include 1% - 1.5% to the Stockbroker and 1% stamp duty. When you decide to sell you may/will again pay the stockbroker 1%. Costs on residential property investments include your solicitor's fees, stamp duty, and you will also have to pay more legal fees on the sale along with your auctioneer's fees. Therefore the real question is not whether one is better than the other but rather how much of each you hold in your portfolio so that you have a balanced approach to your overall funds geared to your target returns.

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