Don’t put eggs in one basket
IN the age-old battle between property and shares, it’s funny to hear what some supporters will say to give their side the upper hand. Lately some investors have been saying that share values — which were slashed in half during the global financial crisis — are back to their record highs.
But the catch is you have to take into account the dividends they have been dishing out for the past five years and add that dividend income to the capital growth.
Well, that argument is garbage. The most common measure of the sharemarket — the All Ordinaries index of 500 Aussie companies — still has to climb about 25 per cent to reclaim its 2007 levels.
To add dividends to show a stronger result for shares is just like adding rental incomes to property prices to get a higher figure for real estate price growth. It’s silly fiddling with the numbers.
However, property lovers have also been known to produce some of their own porkies.
One is the old saying that property prices never go down. Investors and property owners in every capital city have experienced some sort of price fall over the past decade. The good news is that house prices, just like shares, bounced back to deliver solid long-term gains.
Another property lovers’ line is that property is tangible and shares are not. They say you can touch a house but shares are just a piece of paper.
Not true. Shares are a slice in a company, often a big, strong company such as the Commonwealth Bank or Woolworths. Whenever I want to get touchy-feely with shares, I hug my shopping trolley at Woolies. There will always be arguments that property is better than shares, and vice versa. But the most wellbalanced investors own both of them. This strategy reduces risk and helps smooth out overall investment returns.
If property is doing it tough, shares will often be rising. When shares plunged during 2008 and 2009, property prices did okay thanks to the Federal Government throwing cash at homebuyers through generous grants. The past year has been unusual because both shares and property have done well.
Nobody knows what the next year or two will hold, but if you put all your eggs in the one basket and cracks appear in that investment market, things may get messy.
Anthony Keane is the editor of Money Saver HQ, which appears in The Advertiser on Mondays.