Stocks or Property Investment: Which asset class delivers higher returns for investors in the long run?

Nick Sundich Nick Sundich, February 15, 2024

The debate over whether Stocks or Property Investment delivers higher returns is a very popular one to hold, but a difficult one to solve. And so we thought we’d settle it, hopefully once and for all. We’ll recap the advantages and disadvantages to both stocks and property investment, and settle the debate using actual historical data.


Advantages and disadvantages of investing in stocks

Investing in stocks offers the advantage of liquidity, allowing investors to buy and sell shares relatively quickly compared to property. The stock market also presents opportunities for diversification, spreading investment across various sectors to mitigate risk. High potential returns are another attraction since stocks can outperform other asset classes over the long term.

On the flip side, stock investments are exposed to market volatility and can fluctuate widely in short periods, making them riskier. Emotional decision-making (read: failing to do legitimate due diligence on investments) can also impact investment outcomes.

Advantages and disadvantages of investing in property

Conversely, property investment can provide a stable income through rent and potential tax advantages, as well as a hedge against inflation since real estate typically appreciates over time. The tangible nature of property gives investors a sense of security. Land theoretically does not go down.

On the downside, property requires significant capital up-front and has higher entry barriers compared to stocks. It’s also less liquid, with buying and selling being a much slower and complex process. Property investment comes with ongoing maintenance costs, additional expenses, and the potential for periods when the property may be vacant.

Additionally, owning property can limit diversification opportunities as it ties up a significant portion of an individual’s assets in one asset class. This lack of diversification can increase risk, particularly if the local real estate market experiences a downturn. Market conditions also play a significant role in property investments, with factors such as location and economic climate heavily impacting returns.

Overall, while both stocks and property can offer potential returns, they also come with their own set of risks and considerations that investors must carefully assess as part of their due diligence.


Stocks or Property Investment: Which delivers higher returns

OK, we’ve dealt with the theory, but what does reality show? A very similar story – stocks have an overall higher return, but a lot more volatility over time.

In the US, the average return from property between 1980 and 2023 was 8.6% but the average return S&P 500 was 12% – 14% accounting for dividends. Turning to Australia, Vanguard found 7.3% annual returns on property between 1993 and 2023, while Aussie shares returned 9.2%

However, it is important to note that these are very broad figures. No doubt many investors made higher returns due to the choices they made. No stock follows the benchmark indice perfectly, they all perform better or worse. And no two properties follow the exact growth pattern. The return an investor makes all depends on the individual choices he or she makes. Nonetheless, stocks in general show potential for higher returns over the long-term.


So is it case closed? Should we all invest in stocks over property

Not necessarily. Investors don’t need to make an either or choice here, and many in our experience do not. But whatever you choose to invest in, it is crucial to consider your  personal financial goals and risk tolerance when deciding between stocks and property investments as well as doing due diligence on investments. For stocks, that means researching a company’s financial position, its industry, competitors, management and track record, among other factors. It’s also important to regularly review and reassess investments to ensure they align with one’s goals and risk tolerance.

Ultimately, if you are just going with one over the other…for those looking for shorter-term gains or income, stocks may be a more suitable option. On the other hand, those seeking long-term growth and stability may find property investments more appealing.

Our recommendation would be for all investors a well-diversified investment portfolio that includes a mix of both stocks and property, as well as other asset classes such as bonds or commodities. This diversification can help mitigate risk and provide better opportunity for upside to be realised, even if not as much potential upside than riskier portfolios.


What are the Best ASX Stocks to invest in?

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