Shares vs property – Shares outperform over last decade, but which is the better option now?
Trying to decide whether to invest in property or shares has always been a tough decision. Property ownership is part of British culture and buying your own home is seen as an important step in life, and owning your own home makes a lot of financial sense when compared to paying rent all your life.
However, buying a property to live in is very different from buying one as an investment. As an investment, property is often compared to shares but returns have significantly diverged at points during the last two decades.
According to Willis Owen, global equities over the past 20 years have delivered an average return of 149%, marginally beating UK Residential property which returned 147%*.
The timing of those returns does matter though, as 2001 marked the start of a strong property market, whilst shares were suffering a fall out from the TMT Bubble bursting.
Over the last decade the story has been very different. Shares have far outperformed UK property prices, with the MSCI World returning 134% versus 58%* for the FE UK Property Proxy.
“Shares have come back into their own in the last decade as the impact of unprecedented stimulus measures has boosted returns,” said Adrian Lowcock, head of personal investing at Willis Owen.
“The next decade will throw new challenges for both asset classes, but there are a number of important considerations to take into account before investing in either.”
Firstly, the above returns do not account for the costs of investing in either property or shares. Both cost money. With investing in shares it could be £7.50 a trade, or if someone buys a fund, they might end up paying anything between 0.10% and 3% to the fund manager. There are other costs to consider as well, such as platform fees which may start at 0.4% but tend to come down as the value of the investment portfolio gets larger.
There are also a number of costs involved when it comes to owning property, even as an investment. Investors need to make sure they can afford the mortgage cost, insurance, and ongoing maintenance, and have a significant lump sum for the deposit, and weigh this against any income they expect the property to make.
The exact costs will depend on individual’s personal financial situation and the property they purchase, but there are also significant costs paid up front when buying a property, including stamp duty and legal fees.
One of the attractions of property is that it is a physical asset that people can see and feel, unlike shares which these days are just a line of text in an account online. However, that physical presence comes at a cost. Property is inflexible, its location cannot be changed, nor is it easy or quick to sell.
Investing in shares, on the other hand, is fairly easy to do. Investors can sell either all or part of their investment and depending on how they have invested in shares it can take a few seconds or days to get investments back.
Many people already invest in property and it is often their largest investment, but because they live in their own home, they do not see it as an investment. If an investor already owns property then buying more property is giving more exposure to the same asset.
One of the most important tenets of investing is diversification. Diversification is a way to reduce the risk of your investments, and if someone already owns their own home then shares and other investments offer diversification.
“A commonly held view is that investing in property is less risky than investing in shares,” added Lowcock. “This is hard to really quantify, as shares are traded daily and prices updated every second so tend to look more volatile than properties which are valued less frequently – usually only when people apply for a mortgage.
“Both are not without risk – property prices and share prices can both fall depending on the specific circumstances facing them.”
-Ends-
*Source: FE Analytics MSCI World and FE UK Property Proxy Price return in pounds sterling 10 and 20 year returns to 25th February 2021.
Enquiries
Adrian Lowcock, Chris Tuite
Head of personal investing Director & Head of Consumer Finance
Willis Owen MRM London
07849 846387 020 3326 9925
Adrian.lowcock@willisowen.co.uk 07471350180
Notes to Editors
Willis Owen is one of the UK’s leading online investment service providers. Founded more than 20 years ago Willis Owen now has around £1bn of funds under management and has acted as an intermediary for over 150,000 customers and hundreds of millions of pounds worth of investments,
Willis Owen Limited is authorised and regulated by the Financial Conduct Authority.