When in Doubt: Property, Shares or Cash?

  • May 22, 2020 AEST
  • Team Kalkine
When in Doubt: Property, Shares or Cash?

In Economics, investments are equal to savings and savings means financial security. A good investment provides an overall long-term financial safety along with income. But where to invest? There is plethora of choices in the market to invest including stocks, real estate or even cash assets.

But will they meet personal needs? Will they prove to be a good investment or they will end up eating your savings?

Moreover, before jumping into a decision to invest in any particular type of investment, one needs to have clarity on the purpose behind the investment and whether the expected returns will meet their goals i.e. near-term goals, mid-term goals, or long-term goals?

Having said that, lets deep dive and catch some insights on three types of investments – Real Estate, Stocks, and Cash

Real Estate / Property

Real Estate properties are residential and commercial nature. Both property types can be bought or rented out. Residential properties include standalone residential buildings or apartments meant for purchase and sale and to rent out to individuals. While, commercial real-estate properties are bought and sold and rented to businesses.

 In a property market, value of a property has been seen to usually appreciate with time. Hence, property investment can be considered as a long-term investment. Short term buying and selling of a property may yield little results because of slow growth in real estate market.

As per analysts, an investment in property yields good results in a decade’s time. According to The Russell Investments/ASX Long-term Investing Report, residential property ranked as the best performing asset class per annum over ten years to December 2017, though the return was 0.8% less than 2016.

When to invest in Properties?

  • When one is looking for long-term investment: Investment in properties requires huge money and time. Because of this, residential or commercial properties generally don’t yield good returns in short or medium term and is considered best for long-term investment. This also protects the investor from inflation that actually helps raising the value of the property.
  • When one is looking for tax benefits: If one is looking to avail tax deductions through investment, buying property is a good option.

 

What to consider while investing in Properties?

  • Willingness to take financial Risk: As property investment calls for huge capital to purchase, it sometimes includes financial borrowing which is paid back with interest. A person has to be eligible to secure loans from financial institutions, while loans also increase your overall cost of buying.
  • Less Diversified: a huge amount of money gets concentrated in a single asset, thus making investment less diversified.
  • Market Dynamics: During Pandemics or recession, as buying power of customers reduces, the property market experiences diminishing house prices and higher mortgage interest rates.
  • Willingness to pay to brokers: Property buying involves brokerage fees to agents who assist in sorting and help customers go through formalities required while buying a house.

 

Australian Property Scenario

Australian property market continued its upward trajectory from the previous year with the prices on the rise in January 2020 despite the bushfire event. However, property sales effectively ceased during the lockdown and were observed to be slow to recover. Besides, Government regulations stipulating property owners to share the virus-induced financial burden with their tenants further added to the woes in the property space.

In its recent report, NAB outlined below baseline recovery scenario for AU property market-

 

 

While crushed consumer confidence, tougher mortgages and falling job rates may impact the property market in near term, Morrison Government’s three phased plan is closely monitored to bring some relief signs.

ALSO READ: Economic Recovery - Australia's Action-Packed Plan for July

Shares

Shares are a stock unit of a company that gives ownership to the stock holder. Shareholders receive a percentage share of the dividend payout based on the percentage of total shares held by him. 

One can buy shares through agents from the stock market or exchange. A broker facilitates smooth buying experience by providing consultation and assisting one through formalities required for buying shares on ASX, in lieu of a brokerage fees. According to The Russell Investments/ASX Long-term Investing Report 2018, Australian Shares ranked second as the best performing asset class per annum in 2017, though the return was 0.5% less than 2016.

Why to invest in Shares?

  • For high returns in short terms: A person can make short term gains on selling shares at appreciated prices. One needs to follow the market and the company actions to understand the best time to sell the stock.
  • Investment in shares provides flexibility: Shares can be sold anytime, providing investors an option to look for quick liquidity at the time of need.
  • Diversified Portfolio: While there is always risk involved, with shares you have options that enable you to diversify your investments. A properly diversified share portfolio invests across many different companies, industries and countries.
  • Affordability: One can start buying shares using small capital.

 

What to consider while investing in shares?

  • Share value as dynamic as company value: shares means ownership. While company record profits, an investor earn through dividends and when the value of the company goes down, share value change accordingly
  • Investment amount: investment in shares are considered risky hence, it is always advisable to invest in small amounts at initial stages to understand market dynamics, though costs incurred to facilitate that investment may be higher

 

Australian Equity Market Scenario

While AU equity market tumbled initially witnessing heavy selling amidst financial and economic havoc created by coronavirus outbreak, market has been showing signs of resilience off late. Notably, S&P ASX 200 has gone up by 22% as on 21 May post marking recovery since 23 March 2020. Moreover, the index has gone up by 6% over last one month.

Prudent investors may tap potentially attractive themes at undervalued opportunities benefitting by buoyed demand amidst virus outbreak, such as healthcare, technology, telecom and gold space. Moreover, one may not loose hope in retail, banking and travel space showing few signs of resilience. Backed by long term investment horizon and strong fundamental analyses, market players may look at robust businesses with strong balance sheets and stable outlook.

Cash Assets

Cash assets include bank accounts, high interest savings accounts and term deposits, with low risk of losing money. Given the prevailing low interest rate regime, savings in banks needs to be carefully looked at.

Why to invest in cash assets?

  • Instant Liquidity: Cash assets provide ready money to the investors when in need.
  • Security: investments in cash assets provides a secured positive return, being less volatile

 

What to consider while investing in cash assets?

  • Low return of Interest: Cash Assets provides very less return on investment

 

Bottom-line

In investment types, comparing property investments with shares and cash assets is equivalent to comparing apples with oranges and peaches. Like fruits, each investment has its own benefits and risks. Hence, a decision to invest in any particular type of investment should be based on the purpose behind the investment, time frame of expecting the return on investment along with risk appetite and return expectations.

 


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There is no investor left unperturbed with the ongoing trade conflicts between US-China and the devastating bushfire in Australia.

Are you wondering if the year 2020 might not have taken the right start? Dividend stocks could be the answer to that question.

As interest rates in Australia are already at record low levels, find out which dividend stocks are viewed as the most attractive investment opportunity in the current scenario in our report.

CLICK HERE FOR YOUR FREE REPORT!
   
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