I'm a single Mum, and earn a good salary as a lawyer. I've got about $25,000 set aside to invest and I want to see a return in 15 years. Should I invest in shares? Or should I keep saving and invest in property?
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What a great question as it is one that many people will ask themselves over their working lives
The most important question to answer is what are the funds ultimately going to be used for?
- Is the property for your family home or purely an investment?
- If you are looking to invest in property, do you have other equity (a Family Home) to provide security for the possible property purchase?
- How old is your Child or Children? Are they going to public or private school?
- How much free cash flow do you have on an annual basis?
The fact is that Shares and Property have different investment characteristics.
Property is a large singular asset that over time should provide reasonable capital returns and generally low to moderate income from rent. Based on the limited information you have provided you would need a reasonably large mortgage to purchase the investment and you would need to be comfortable that you could service the payments as well as the ongoing maintenance and general expenses. Finally, when you go to sell the property, it will have a Capital Gains Event that will add 50% of the gain to that year’s taxable income, should you hold the property for more than 12 months. This could be significant depending on your Taxable income.
Shares could give you greater exposure to a more diversified group of investments, across financials, mining, industrials, property, pharmaceuticals and the like. This would mean that while you would be invested in a single group of Assets (shares), diversity over time would potential give you better protection to specific market movements. You would not necessarily need to borrow funds to invest in Shares, but could if you wish. This means that the initial investment could be actioned immediately and you could add to it over time. A negative of Share Markets is that you can see the absolute value of your portfolio on a daily basis and this can be unsettling should the market go through a correction. You can derive a cash flow from Shares if you invest in dividend paying companies and this could either assist in your personal cash flow or be reinvested into the portfolio. The capital gains event on shares can be managed more efficiently than with property, as the same rules apply, but you can sell shares in portions and thus only stimulate a partial Capital Gains Event.
Most importantly, if you are looking to make decisions of this nature, some time with a Qualified Financial Adviser, who will give you balanced advice with consideration of all of your personal circumstances would be invaluable. There is never one answer and once you dig a little deeper, I am sure you will find that it is the ultimate goal that will provide the best answers. I am happy to discuss over the phone if you would like to expand on this general information.
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