Asked on 18 Apr 2019
Which brings more benefits to an investor in terms of returns, liquidity and wealth in general?
Coming from the perspective of someone who has invested in both properties and stocks, it does not need to be one of the other. That said, here are the key differences based on my experience:
Initial Cash Outley/Capital Needed
Firstly, from an accessibility perspective, you would need lower capital to invest in stocks. Unless you have a large amount of cash lying around for down payment, it is not likely that you will be able to pay for property from the get-go.
There are two camps to this. Investors who prefer stocks will say that:
Rental properties require more work (I did have to spruce up the apartment and we gave it a new coat of paint)
Risk of tenants damaging the property (I just had to pay for things when say, washing machine broke down, but so far my tenant has been a nice person!)
Tenants gone rogue and don't pay rent (happened to me as well)
On the other hand, property investors, will tell you the age-old:
Property will always be there. Ie. is it more tangible.
Not as volatile as stocks
Not at the mercy of speculators who dictate the market performance.
I definitely will not sell my property now as I am in it for the long term (and see a significant appreciation in value), but I can sell my stocks anytime I need for liquidity. Think about how much liquidity you will need - property does not offer that level of liquidity.
Perhaps just to add on a couple of points not mentioned
Requires monthly recurring payments (your monthly conservancy fees / taxes)
Paying by installements = Another financial burden / obligation, if suddenly your income stream is unable to support this outflow, problems may arise.
In land-scarce Singapore, with the increase in connectivity within various towns and with population projected to increase, I can foresee property prices increasing further (if you have the holding power)
Physical property, you'll be able to see with your own eyes it's there
One-time payment, lesser financial burden.
A stock is simply an intangible item, just a one-liner on your CDP / Broker account Portfolio.
Most important, whatever you choose to invest, make sure it's within your means
I assume that you are comparing the two since you probably want to know which investment product will tick your boxes. i have done a breakdown below for your reference on some on the commonly compared points. Do note that there are assumptions made for the chart created.
Why not both?
Depends on what you want to achieve?
Lump sum capital gain or consistent passive income?
Stocks could be in terms of index ETFs, blue chips, growth companies, value companies and of course, REITS as below.
Properties could be in terms of REITS, crowdfunding or outright ownership.
Capital outlay could be similar or different, depending on your amount to invest.
Here are some characteristics for comparison!
Physical properties tend to more illiquid meaning it would take a longer time to liquidate it and receive cash. Stocks on the other hand can be easily liquidated due to the active buying and selling of stocks.
Physical property prices do not fluctuate as much as stock prices do according to market news or market sentiments.
Physical properties tend to require large amount of capital, so if you are tight on cash, it would be a better option to invest in stocks.
Typically, investing in physical properties do not offer much diversification (due to large cost of capital it is difficult to invest in a a variety of properties).
Requires less capital outlay. You can build up a portfolio over time.
For properties, I would say in SG we are not going to see that explosive growth the older generation had with properties. Buying one now there will only be limited upside and rental is not guaranteed since tenants come and go anytime.
After getting own place to stay, best to invest in Stock because dividend and capital gain is tax free.
There's no cost of maintenance nor property tax yearly for stock.
So Stock and other instrument that is tax free is the right investment.