Australian investors have long been spoiled for choice. Put money in the bank and enjoy healthy deposit rates, buy an investment property and watch land values increase and rental income pour in, or invest in shares and enjoy dividends plus capital growth.
Although investment choices seemed simple, it all became a lot harder with the onset of the 2008 financial crisis. Suddenly, housing and share prices both fell. Now, after a few years of sluggish recovery, real household wealth has returned to 2006 levels.
Where to invest
In times of uncertainty, the safe haven of bank deposits appears increasingly attractive. Not only is the money secure and backed by an Australian Government guarantee (for deposits up to $250,000), but depositors can earn returns above the inflation rate, which in the latest survey for the March quarter stood at 1.6 per cent a year.
If you’re trying to save for a house, holiday or car, or about to retire, then putting the money into a bank deposit is a no-brainer. However, if you have time on your side and can accept greater risk for potentially higher returns, shares and property are attractive.
The best performers
The debate over the merits of shares and property will probably never be settled. However, a recent survey by advisory firm Russell Investments and the Australian Securities Exchange (ASX) found that in the 20 years to June 2012, shares slightly outperformed residential properties.
The survey found that Australian shares held inside superannuation funds gained an average of 9.2 per cent a year after taxes and expenses, against 8.2 per cent for residential property. Both comfortably outperformed inflation as well as bonds (6.5 per cent) and cash (3.5 per cent).
But before jumping into shares, consider that residential property investment was the top performer over the past 10 years. No one rings a bell at the top or bottom of the sharemarket, and it’s always tough deciding when to buy or sell.
A final word on investment choices
Property prices and interest rates have dipped recently, but with the growing population, expanding economy and low jobless rate, the housing market will eventually recover.
With tax and fiscal incentives backed by tangible ‘bricks and mortar’, property is set to remain a favourite. However, shares also offer tax benefits along with an ability to quickly sell.
Why not invest in cash, property and shares and enjoy the benefits of all three asset classes?