#020 - Property VS Shares (The SMSF Mistake Costing Australian’s Millions) 🏠💸

In this episode of SMSF Insider, host Troy, founder of Blue Chip SMSF Services, delves into the age-old debate of property versus shares as investment options. He discusses the ease of liquidity with shares, highlighting how quickly they can be sold and the potential for dividends. In contrast, he examines the income generated from property through rent and the implications of taking on debt to invest in real estate. Troy emphasizes the importance of diversification in a portfolio, suggesting that a mix of both assets can be beneficial. However, he poses the question of which investment might be more suitable if one had to choose only one. Join Troy as he breaks down the complexities of these investment strategies, helping listeners navigate their financial independence journey.

Ready to finally take control of your take control of your retirement savings and stop leaving your future in someone else’s hands? Book your free call with our team today to find out more: https://www.bcsmsf.com.au/contact-us/

Follow us:

Instagram – https://www.instagram.com/bluechipsmsf/

Website – https://www.bcsmsf.com.au

Please note: The information provided in this recording is for coaching and educational purposes only. It should not be considered personal financial advice. Everyone’s situation is different, so before acting on any of the content discussed, please seek independent financial advice tailored to your specific circumstances.

Timestamps:

00:00:00 - 00:00:00: Introduction

00:01:23 - Property vs. Shares: An Overview

00:02:45 - Understanding Gearing in Property

00:03:53 - Liquidity and Costs of Property vs. Shares

00:06:10 - Pros and Cons of Property Investment

00:06:30 - Volatility in Shares

00:07:33 - Determining the Right Asset Class for You

00:08:30 - Ease of Purchasing: Shares vs. Property

00:09:34 - Tax Implications of Property and Shares

Episode Transcript

(00:00):
How hard is it to get out of that asset or sell that asset if you really need
to? Shares obviously is much easier to get out of so you can sell
them quicker because you can put a sell order in and have the money
back in your account within three days. Certain shares will pay dividends
so when you're investing in these companies they make profits and then they
also pay what's called a dividend so they share those profits with

(00:20):
the shareholders. after the tax has been paid at 30%, so it's called
a fully frank dividend. And with property, you
also have income and that's called rent. That also gets paid and typically
that rent will be used to service the loan. If you're happy
to take on debt and borrow money from the bank to purchase an
asset, then perhaps property might be more suitable for you. But

(00:41):
if you're not willing to take on debt and you are okay with volatility,
then shares might be the right option for you. Welcome to SMSF
Insider, where we help busy professionals to gain financial
independence using an SMSF. Hi, I'm Troy, founder of
Blue Chip SMSF Services. And over the last 20 years, I've helped thousands
of Aussies manage the complexities of self-managed super funds. And

(01:02):
in this podcast, I'll answer your questions, break down the myths, so
you can take charge of your financial freedom. Let's get into it. Just a
quick disclaimer and just a reminder that this is not personal advice.
So make sure you speak with a licensed advisor before making any
investment decision. Hi, welcome to SMSF Insider, where today
we'll be talking about property versus shares. It's good to

(01:23):
have a bit of diversification in your portfolio. It doesn't matter whether
it be property or shares, but it's good to have a bit of both. But
if you could only choose one, which one would it be? So
there's a few things we should talk about before making
any investment decisions, and that is, what are the pros and cons?
So with property, typically, you can get

(01:46):
some gearing. So you need a maximum, you
could have anywhere from 10% to 20% deposit.
So let's work on 20% deposit. If you're buying a million dollar
property, for example, at the moment, you'd
need $200,000 to purchase that property. That
gives you a million dollars exposure into the market. So if

(02:07):
that property went up 10%, for example, over a one
or two year period, that would mean the property goes
from $1 million to $1.1 million. That's
a fairly typical scenario in
today's market. With shares, however, if
you had a $200,000 share portfolio, so

(02:28):
you take that same $200,000 and you invest that in
shares, that property, that share portfolio goes up
by 10%. So the same amount, your $200,000 turns into $220,000. So you've made $20,000 as opposed to
$100,000. Now, yes, there are costs with property, of course. So you've

(02:51):
got stamp duty implications and you also have sales costs when
you sell the property. But that's only when you sell. So over
time, that million dollars, if that compounds
over the next 10 years and you continue to get those types of returns,
even if it's 7% return, then you've
got 70,000 compounding over over a 10-year period

(03:14):
as opposed to the $200,000 that's compounding at 7%, so
you're only getting $14,000 compounding over
that same period, then I think long-term the
property would outperform when you add the gearing in there. Of course, when
you're talking about no gearing, then that's a bit of a different story, but
most Property investors have gearing. When

(03:36):
I say gearing, they have a loan attached to them, and that's where
the lending or the gearing can be quite a powerful tool
to use. So that's the difference when you're talking about returns. There
are, of course, costs of getting into a property and getting out. Liquidity
as well, when I talk about liquidity, how hard is it to get
out of that asset or sell that asset if you really need to? Property, of

(03:59):
course, can be a lot slower in certain
markets to get out of, whereas shares obviously is
much easier to get out of, so you can sell them quicker because you can
Put a sell order in and have the money back in your account within three days So
it is easier to get in and out of shares and that's called liquidity
and and property is a little bit harder to get in and out of But

(04:23):
over the longer term when you do add gearing property can be quite
a powerful tool So I'm not saying that you
should choose one over the other. I'm just trying to explain the difference to
you so that viewers can
make up their own decision around what asset class
may be more suitable to them. So with shares,

(04:45):
you've obviously got certain shares will pay dividends. So
when you're investing in these companies, they make profits. And
then they also pay what's called a dividend. So they share those
profits with the shareholders. after the tax has been paid
at 30%, so it's called a fully frank dividend. And
with property, you also have income, and that's called

(05:06):
rent, and that also gets paid, and typically
that rent will be used to service the loan. So
when you've got a loan attached to the property, you will be
required to pay interest on that loan, and typically that rent will be used
to pay the interest on that loan. So
there are a couple of differences obviously between the two asset classes. It

(05:29):
is great to have a bit of both, but certainly
I think property, when you do add the gearing in
there, is a very hard asset class to beat. But
certainly make sure you're touching base and
talking to an advisor before you're making any investment decisions. Just
quickly, guys, if you're a busy professional fed up with traditional super

(05:50):
funds and overwhelmed by the setup of your SMSF, we can help.
Book in a call with my team using the link in the show notes, and let's
build your future on your terms. Now, back to the episode.
Some cons with property being it's a little bit more illiquid than
you've got. costs, like stamp duty costs and sales costs when
you're getting in and out of the property. With shares, there

(06:11):
are some cons as well, and that is volatility. So it is
very much, shares are
very much more of a volatile asset class. So when I
say volatile, they do go up and down a lot
more than what property does. And it
is, obviously, it's not tangible, so you can't see it. It's

(06:33):
basically just on paper. So, the
main one being volatility, shares do go up and down quite
a bit and if there is a market crash, your
portfolio is affected almost instantly and sometimes
even before there's a crash, just some news can crash
a market. There is definitely more volatility with shares than

(06:55):
property, and that is mostly because property isn't valued
at a specific point in time every second of the day, like shares
are valued every second of the day. Property, however, isn't valued every
second of the day. It's only valued when you call a valuer and
ask the valuer to go and value the property. So that's why shares
are typically considered more volatile. But I thought

(07:17):
I'd just mention that. at the
cons around shares as I have done
so with property. So as a whole, who is
this targeted towards? So which
one is going to be best for you? That will really depend on what
your individual circumstances are. So if

(07:38):
you're happy to take on debt and borrow money from the bank
to purchase an asset, then perhaps
property might be more suitable for you. But if you're
not willing to take on debt and you are
okay with volatility, then shares
might be the right option for you. But certainly a lot of people

(08:00):
when it comes to property, you
know, everybody needs somewhere to live. and there seems to
be a shortage of it. So you really just need to consider what is
best for you. So reach out to your advisor and they'll
help you go through and help you make that decision which

(08:20):
asset class is going to be best for you. So while we're on the topic of
shares versus property, which asset class is easier
to purchase? Well, in my opinion, shares
are probably much easier to purchase. You can jump on the exchange, talk to
your stock broker, and purchase shares pretty quickly off
the exchange. Property, however, can take a bit of

(08:40):
time to get into. So you need to firstly find
the area you want to buy into, the type of property you want to purchase. There
is a shortage on property. It seems in
Australia at the moment, so it is a bit
harder to purchase property than shares. And that's probably why
I think share property is performing well

(09:03):
at the moment, because there does seem to be a shortage. It's the same old
demand versus supply. So when
it comes to purchasing assets, property versus shares, which
one's easier? Definitely, in my opinion, shares are much easier to
purchase than property at this point in time. So while we're here
talking about shares versus property,

(09:24):
I thought we'd briefly touch on the tax implications of both asset
classes. If you hold a property for less than 12 months,
which is probably unlikely, but if you do, it's
15%. If you hold it for longer than 12 months, then
the tax rate is 10%. And of course, if you hold
it all the way through to retirement, it's 0% capital

(09:45):
gains tax. With shares, it's taxed the
same. However, shares are typically, sometimes they're
traded a little bit more frequently, so you just need to be careful when
you are buying and selling shares. If you do sell
them inside that 12-month period, they'll be taxed at 15%. The
idea is to, when you're purchasing some of these assets, it

(10:06):
is inside a super. then it is a
long-term strategy. So holding it for longer than
12 months, shares, again, will be taxed at 10% after
the 12-month period. And again, if you hold them right through to retirement age,
the capital gain on those shares will be 0% when
you're in pension phase. So I just thought I'd explain the difference in

(10:29):
taxation between the two asset classes They're actually taxed identically, but
with property, typically it is held more than 12 months, whereas
shares can sometimes be bought and
sold within that 12-month period. So just be mindful of that. Reach out to
your advisor. I'm Troy from SMSF Insider. Thanks for listening. Thanks

(10:49):
for tuning in to this episode of SMSF Insider. If you got
value from this, make sure you subscribe so you never miss the strategies we
share to help you take control of your financial future. Find us on socials at
bluechipSMSF or book a call with our team to see