FOOL'S EYE VIEW
Exclusive: Shares Beat Property!

By Stuart Watson (TMFTiger)
June 24, 2004

There are endless debates about whether shares or property make the best investment. To some extent of course, it depends on your own particular circumstances. If you're a useless handyman, the idea of becoming a buy-to-let supremo may not appeal. But here's my take on which is best, looking at how these two assets stand up on five key measures.

Growth prospects

Despite the fact there are house price and share indices aplenty, comparing the long-term performance of these two assets is not easy. Share prices are easier to track, thanks to indices like the FTSE 100. Due to various studies, we know that since 1918 they've returned around 11% a year on average.

However, property indices have more cracks than my living room ceiling. They only include the small fraction of the market that is being sold at any particular time for starters. And how do account for a property that has been extended? What about all the money you've spent on maintaining your home since you first bought it?

Most of the main property indices only go back to the 1970s. Since then, property and the stock market have offered broadly the same gross return (i.e. ignoring the effects of gearing). But, as the figures for shares are more robust and owning property incurs ongoing costs, I'm going to give shares the nod in our first category.

Shares - 8/10
Property - 7/10

Versatility

You can invest in the stock market with as little as £25 a month. It's easy to sell as well. You also have a variety of tax-efficient ways of holding shares, such as ISAs and pension schemes.

Property is an entirely different matter. You can't buy and sell bits of your house. Moving home, or buying a buy-to-let property, is an expensive business, incurring a large dollop of stamp duty, solicitors' fees and other nasties. The one major advantage property does have is that it's much easier to borrow money against it. This can magnify your returns, assuming prices do rise of course, but it also increases your risk.

There are plans in the pipeline to make property investing easier however, in my view, it's a decisive win for shares in the second skirmish.

Shares - 9/10
Property - 6/10

Sleepless nights

This is where property starts to fight back. Property prices tend to be a lot less volatile than shares. The stock market can be down one year, up the next and then down again. The cycle of property prices tends to be a lot smoother.

Individual property prices tend to move in the same direction as the overall market, while individual share movements can vary widely. One share could double in a month while another could just as easily halve!

Provided you take a long-term view, you should still be able to sleep easy with shares but it's clear that many find property a lot easier on the nerves.

Shares - 6/10
Property - 8/10

Time and effort

In order to get the most from your investments, you'll need to commit some time. If you're investing in a tracker or an investment fund, the effort will be fairly minimal. If you're buying individual shares however, you'll need to do a lot more legwork. Not only do you need to learn the basics of investing, you'll need time to research potential opportunities and to monitor their progress.

Looking after property can also be time consuming. Again, there are ways around this - using an agent to look after your buy-to-let empire for example. But that costs of course. As a physical asset, property is always going to be the more demanding of the two.

Shares - 7/10
Property - 6/10

Complexity

This is the last category and shares are well ahead at the moment. But hold on, because property is making a final sprint for the line!

The stock market is not an easy place to understand. It has its own jargon and picking one share or fund over another appears, at first sight anyway, to be an utterly confusing process. Movements in prices can be baffling, too.

But we all have a good idea about what makes a good property. And we can easily get a handle of current prices via the local papers or property websites. Not only that, we even touch our investment, if that's the sort of thing that flicks your switch. All in all, I reckon the average punter finds property much simpler to get his or her head around.

Shares - 6/10
Property - 8/10

Final tally

Here is the moment of truth. Adding up the five categories we get:

Shares - 36
Property - 35

I hereby declare shares the winner, albeit by a whisker. Truth be told, both these assets make great long-term investments. Every Fool should have a bit of each in my opinion. Short of owning your own business, owning assets such as these is the best way to build wealth.

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