“Stocks and shares, or property? That is the question.”
I know it wasn’t the Baird’s original question, but it’s one I keep being asked by clients. There isn’t a simple answer. Both can be excellent, and both can be a minefield to navigate. There are so many variables – it’s an ever-changing landscape with both.
Having trained as a Financial Advisor back in the 1980’s I know the best advice is to say that you should spread your investments. Have some funds in the stock market and some in property. I followed that mantra, and I’m quite satisfied with both my property portfolio’s performance and my investments in shares. I’ve never ‘made a killing’ as the saying goes, unlike some of my clients. But neither have I had a sleepless night about my investments!
Starting out is always the problem. If you have a large amount of capital to begin with, the decision over how to utilise the capital is easier – you can put it all in the stock market, you can put it all into property, or you can spread it with some in each sector. But when starting out most people have limited capital.
Let’s look at some of the basics…
Investing in property usually requires more initial capital than stocks and shares, especially in a city like Leeds. It’s easy to start trading shares for a few pounds, especially with new apps like eToro (not that I’ve used that platform for any share trading personally). Property investment necessitates incurring acquisition expenses – legal fees, survey fees, mortgage application arrangement fees, Stamp Duty, etc. These costs can run into a few £1,000’s for a modest property, and up to £10,000’s for more substantial investments. Although some expenses may be incurred with stocks and shares, these tend to be at most in £100’s, assuming you’re not trading huge sums and you do not need professional advice (what’s known as ‘Execution Only’ transactions).
Timing is another factor. It can take 3 or 4 months to purchase a buy-to-let whereas trading in shares can happen in a few minutes. Selling a property can take many months when you want to liquidate the asset. Getting rid of your shares can be completed within the day of making the decision, again assuming Execution Only.
On the subject of Execution Only, I would always recommend you take professional advice before making an investment. That’s irrespective of what sort of investment. In the majority of cases I would also recommend you have your investment professionally managed. Keeping up to date with investment news, legislation, tax, etc. is very difficult, especially if you have a full time job beyond your investments. Far better you have someone who is dedicated to managing your portfolio day-in, day-out, rather than you operating it on a part-time basis and making one small mistake that then costs you £’000’s to rectify.
The yield you will derive from property tends to be fairly stable over the short term to medium term. Stock market yields can vary substantially, year to year, especially for smaller companies. There can be cashflow issues with property investments, but generally over a 10-year period, the cashflow evens itself out and a steady yield becomes evident. The same can apply to the stock market, although unlike property there can be major short-term fluctuations in the capital value of a share portfolio, especially when the portfolio is made up of only a small number of holdings.
Property values can fall, but such movement tends to be slow, either up or down. The exception tends to be where there has been Government intervention e.g. the 2020 Stamp Duty Holiday saw prices surge within a month of the announcement. A slow movement in prices does not generate the same sense of urgency to make quick, strategic, decisions that a sudden fall in the stock market can create.
I recall the property markets of 1989-95 and 2008-2013, when property values dipped substantially. These were the most rapid falls in prices I’ve seen over my 40-year career. In all cases however, property prices recovered by the end of the next 10-year cycle, and moved ahead by quite a margin shortly thereafter. The banking crisis of 2008 created the longest ‘dip’ in property prices I can recall, but prices started recovering in 2013 and by 2018 prices were back up to, and slightly ahead of their pre-2008 levels.
The records I have for the past 50 years (thanks to my predecessor, David Moor FRICS retaining his archive data) show property prices in north west Leeds have been volatile in any 5-year period – some periods having performed well, others having seen prices fall back. Yet any 10-year period, prices have increased e.g. 1989–1999, 1997-2007, 2008-2018, etc.
Hence, the phrase bricks and mortar are a good, long-term, investment.
– By Director Michael Moore