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2021 has seen the market reach new highs, quickly regaining the losses seen from the pandemic-induced crash in 2020. In recent times stock markets have now entered correction territory in early 2022.

On the other hand, the Australian property market exploded in 2021, with housing values across the nation’s capital cities growing, generally, more than 20% last year. Now prices appear to be cooling in multiple states such as Victoria, New South Wales and South Australia.

With both markets already having a lofty increase from the 2020 Covid recession, the age-old debate rages on. Is it better to invest in Australian property or shares? Which one will generate better returns over 10, 20 or 30 years?

Australia equities return versus Australian property

How does the performance of Australian shares shape up against property? Let’s look at some historical data.

Vanguard Australia has been tracking the performance of major asset classes indices for two decades. The 2021 report shows that the Australian share market has generated an average return of 9.7% per year over the last 20 years.

Looking at property, CoreLogic data reveals Australian house prices have risen by an average of 6.8% over the last 25 years.

Both investments offer the potential to grow in value over time. If we purely consider the average annual performance set out above, investing in shares comes out on top. But there are other factors to consider…

Investment strategies differ beyond performance

Aside from the obvious – average annual performance – there are several key differences to consider between investing in Australia property vs shares:

  • Cost to enter the market: Investing in property typically requires a significant upfront investment, which can take several years to save for. Investing in shares is possible with a low minimum investment – as little as a few dollars if you’re micro-investing.
  • Ongoing costs: With property you can assume there will be big upfront costs as well as yearly maintenance and repair costs, all of which will impact your returns. Depending on the strategy you choose, the costs involved in investing in shares can be much lower.
  • Hands-on involvement: Investing in property usually requires more time and effort than investing in shares. You can hire a property manager to take care of things for you, but that’s another cost to consider.
  • Leverage: When you invest in property you typically have more leverage, which means you can access more of someone else’s money (e.g. the bank) to grow your portfolio.
  • Type of asset: Property is a physical asset, so you can live in it if you want to – although that will impact potential rental returns.
  • Diversification: Investing in property typically involves investing in a small number of similar assets (houses, units, apartments etc,) whereas investing in shares allows you to spread your money more easily across different assets or asset classes.

The verdict? You don’t have to choose!

Perceived wisdom might say that you should focus on one or the other, but in today’s market you don’t have to. Property prices are currently sky-high, with the average single income-earner needing around seven years to save for a 20% deposit across Australia’s capital cities.

At the same time, easy-to-use investment apps are making it simple for anyone to start investing in shares without needing a lot of capital.

While Australia’s love affair with property isn’t likely to die down any time soon, share investing is more accessible than ever. So even if you have your sights set on the property market – or you’re already in it – there’s never been a better time, because of the ease of access, to diversify your portfolio by investing in shares too.

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Products issued by Melbourne Securities Corporation (MSC). Please consider the PDS and TMD available on our website before applying. All investments carry risks and you may lose your money. Past performance is not indicative of future performance. The information in this report has been compiled from sources we believe are reliable and we make no warranty in respect of its accuracy.