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?
Top answer provided by:
David Nelson
Dear Annette,
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
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
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.
Advice
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.
While the Adviser Ratings Website facilitates the question and answer functionality, all such communications are between users and authorised financial advisers, of which Adviser Ratings has no affiliation. Adviser Ratings is not the advice provider and does not provide financial product advice and only provides information that is general in nature.
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Comments3
"Good response Dave (we're mates). I agree we don't know if you own or wish to own your own home first. Also I would add it is always good to have what I call a 'second string' to a property. For example could the investment be where you would like to retire? Or a commercial property that you might one day run a business from? Just avoid buying a suburban home with no differentiating features and also avoid construction. All the best. Steve 08 8274 3744."
Steve Greatrex 14:58 on 10 Dec 16
"Thanks David for your response. It's generally difficult to answer these questions without knowing the needs of the client and the underlying motivations for those needs to be met. Your answer is well balanced and informative enough to encourage a deeper conversation between the client and a qualified adviser. It's also worth mentioning that regardless of the asset type used, the basic principles of investing in a growing asset hold true. Being patient and having TIME in the market will enable the client to benefit from the COMPOUNDING effects of investing which will assist in generating more potential long term growth. Well done David."
Andrew Akuoko 12:57 on 10 Dec 16
"There's never a simple direct answer for this is there. Perhaps the question should be worded differently - "How can I reach financial freedom starting with $25,000 in savings." Now that's something we'd all like to hear about. 😉 Safe answer David. Not criticising you as I'm well aware of our duty of care as advisers. "
Jeremy 22:12 on 09 Dec 16