Don’t put eggs in one bas­ket

The Advertiser - Real Estate - - Adamson Ave, Belair - ANTHONY KEANE

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.

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