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Building and protecting your wealth

The Best Long Term Investment – Property or Stocks?

The best investment portfolio is one that’s diverse, offering you a variety of investments all working hard for you. A question many face is which type of investment will be best for the long-term? A case can be made for both property and stocks, so we’ll present the pros and cons of each. We’ll also provide an analysis of how each have performed historically and how they are doing now for you to decide what’s right for you.

This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

Evaluating Property

Some people prefer investing in property because it’s tangible and relatively simple. However, property is also an active investment that requires constant work – from maintenance and repairs to interacting with tenants and vendors.

However, property offers good protection for your investment from inflation. So while you may go through years where you don’t gain any capital, there’s a good chance you can sell for a profit (as long as you sell at the right time.) A big downside to income gained on the sale of property is that this profit is subject to tax.

An eye on stocks

Shares on the other hand, are slightly more complicated than property. You will need to educate yourself on how the stock market works and the individual shares you wish to buy and/or you will need to employ a broker that will help you invest.

The upside to stocks is that they are easy from a management standpoint so you can take a laid back approach – just buy and let them do their thing or you can manage them hands-on by keeping an eye on stock trackers daily.

Stocks are subject to unexpected changes – fluctuating from day to day and for the overly cautious, it can be all too easy to sell an underperforming stock that may improve just after a sale. However, ease of sale is a plus if you need money quickly, and they also have good protection from inflation. An advantage shares have is that they can be purchased through tax shelters like ISAs or pension funds.

By comparing property and stocks like this, there doesn’t appear to be a clear winner. Looking at how each has performed in the past can help decide which type is better long-term.

Historic results

According to a long-term study by Credit Suisse, the winner, hands-down over the years is stocks.

To make this determination, they reviewed data from the last 118 years and discovered that while property does indeed provide quality and consistent returns, the housing sector has unfortunately produced negative returns.

The ‘quality-adjusted real capital gain’, which calculates inflation and housing quality, returned about -2.1% annually.

However, during that same time period, if you invested in the stock market, your annualised return would have been 5.5%. Along the same line, UK bonds returned 1.8% and ‘bills’ (basically cash) returned 1% per year.

Another way to ascertain the best type of investment is to consider the returns each type is currently yielding.

Current performance

Within the past 10 years, house prices have moderately increased, a slow rebound from the financial crisis, in all areas of the country apart from London, which has experienced a much higher rate of house price growth.

However, share prices have also been rising. As of 2015, the net income of property came to 3.05% (5.02% ex fees, etc.) while net income on stock market gains came to 6.2%.

These figures take in to account an estimated 2% of the property value is maintenance, fees etc. Even disregarding fees and maintenance, it’s clear the stock market has outperformed the housing market recently.

Of course throughout the years, each investment type has had periods of success. Sometimes the housing market surpasses stocks, and sometimes stocks outpace property. However, looking at overall trends and current performance, stocks reign supreme.

Ultimately, the best long-term investment is the one you are most comfortable with and our financial specialists can help you build and protect the investments you’ve made with your hard-earned money.

Want to build a solid investment portfolio?
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Dental & Medical Financial Services have been helping doctors and dentists to build and protect their wealth, whilst saving tax for over 25 years.
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Tel: 01403 780 770


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