Housing vs shares

Why I believe you should always back Global PLC When I started in financial planning back in 1995, the biggest obstacle I heard to investing was: “I’m buying bricks and mortar, that’s my pension.”

This went away somewhat during the global financial crisis of 2008, partly because of the difficulties of arranging mortgages but also because the market became less attractive.

In recent months, however, we’ve seen a resurgence in property investing brought on partly by the stamp duty holiday.

A good friend called this week to ask me: “Why do you always invest in stocks? Don’t you ever consider the property market?” My answer was “no”.

There are logical reasons why I believe equities make better investments than property, but we don’t buy with logic, we buy with emotions, justifying our decisions with logic that will back up the choice we made. Here’s a great example: I was speaking with a client recently and he was very proud of a property he purchased in 2000 for £80,250 which today is valued at £210,000 – a gain of almost £130,000.

That’s a pretty nice return. But how does that 4.5% annualised return compare with the stock market?

Back in 2000, if he’d invested his money in a boring, straightforward world equity fund, he’d now be sitting on around £347,132 – £135,000 more.

When you buy the world stock market, don’t think of it as just buying a fund.

Think of it as becoming a part-owner in some of the most valuable companies from around the world such as Apple, Microsoft, Exxon, Johnson & Johnson and Visa.

Which would you prefer: a rental property in your local town, or ownership of some of the world’s greatest companies? You might be thinking: “Wait, you’ve forgotten about the rental income he receives.” True, this is generally around 3.5%, which is what my client’s property achieves, in a lower risk family unit. But this isn’t what he keeps.

After deducting the letting agent fee, building insurance and tax, what’s left is generally just enough to keep the roof up. Because over a 20-year period, how much do you think he needed to spend on the house to keep it in good repair?

My grandmother always said to me: “It’s not what you make that’s important, it’s what you keep.”

An £80,000 investment can be managed hassle-free, tax-free within ISAs and allowances, but when my client sells his home, he’ll pay a “success tax” of 28% on the profit he’s made and have to give tens of thousands of pounds to HMRC, which will really eat into his return.

If you can afford to buy your own home, you should. But as an investment, I’ll keep backing Global PLC and allow the best brains and talent in the world grow my wealth tax-efficiently.

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What would you prefer: a local rental property or to part-own a company?

CARD SHARP You could buy a property or put your money in global companies such as Visa