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MICHAEL FINANCIAL PLANNER
SHERIDAN
Michael Sheridan is a Financial Planner and Partner of Morgans Port Macquarie. Driven by a genuine desire to help people and see them succeed, he has 13 years of experience in the banking and financial advice industry. Michael has experienced both booms and busts in investment markets along the way and sheds some light on the age old debate around property versus share investment.
s a financial planner, I understand one of your major roles is helping people navigate the many complexities of investing? That’s correct. A common question we encounter is whether property makes a better investment option than investing in the share market. We frequently get asked whether cash and fixed interest investments are truly “risk-free” assets. The property vs shares debate has been argued on both sides for years. Which side of the camp do you sit on? My position is that generally no one asset class is better than the other. They are each very different investments, with different features, particularly in terms of growth, tax implications, volatility, liquidity and your ability to leverage. It is these factors that require individual consideration - it depends wholly on the investor’s personal circumstances, objectives and constraints. Why do people tend to favour one option over the other? It comes back to what people are comfortable and familiar with. On the face of it, investing in shares can appear more volatile than its alternatives, a point that share market investors have to concede. However, if you subjected the property market to daily trading, like shares, it too would appear very volatile. There are many things to like about property, but one that strikes me as strange is the obsession in having a tangible asset. People like the abiltity to see and touch it, whilst others might consider this irrational. Regardless, people often let this influence financial choices. The two also tend to be compared over a short time frame. Any short-term analysis will naturally favour one option over another, depending on which time period you choose. Regardless, diversification is the key to developing a safer, and potentially better performing investment strategy. What does history tell us of both shares and property? Looking at the last 10 years enables a fairer representation of the results and a more realistic comparison. According to RP Data, the average price of a house in Port Macquarie at the end of 2008 was $370,000. In 2018, the median house price is now $568,000 - an overall gain of 52%. This doesn’t take into account what you’ve spent to maintain the property over that time or the stamp duty on the initial purchase. Comparitively, if you had a share portfolio made up of an average mix of ASX200 companies and it was worth
Should I invest in property or shares? Learn how different investment options can help to build your wealth. Financial Planning | Investment Advice | Superannuation Morgans Financial Limited ABN 49 010 669 726 AFSL 235410 A Participant of ASX Group A Professional Partner of the Financial Planning Association of Australia.
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$370,000 at the end of 2008, today it would be worth a little over $602,000 - a profit of 63%, with the cost of maintaining this asset being virtually zero. What are your views on the current outlook for both property and share markets? Several factors that drive property investment are all now pointing to a potential slowdown in the market. These include low affordability due to high household debt, increasing supply, high prices, tightening credit conditions and softening rental income growth. While this may not signal the timing of a property downturn, it does make me cautious. Add the possibility of rising interest rates, and we could be at the start of a perfect storm. As for the share market, following the relative calm of 2017, volatility has returned. The recent pullback reflects ongoing concerns about the US Federal Reserve raising rates, higher bond yields and that Trump’s proposed tariff hikes will start a global trade war, depressing economic growth and profits. Add this to existing geopolitical issues (North Korea, Eurozone and terrorism) and we see volatility remaining high this year. These issues are worth keeping an eye on; however, there are several key points investors need to consider. Firstly, turn down the noise. Geopolitical issues draw considerable interest; however, as we have seen in recent years (e.g. Brexit) they may not have significant negative impacts on investment markets. Second, periodic setbacks in share markets are both normal and healthy. When growth assets fall, they become cheaper, consequently offering improved long-term prospects. Whilst markets have pulled back, dividends haven’t, therefore the income received from a well-diversified portfolio remains attractive. If people are considering whether to invest but they’re unsure where to start, what would your advice to them be? First, consider what it is you’re actually trying to achieve. Most people struggle to answer this. It is a subject I spend considerable time discussing with clients, before developing any investment strategy. Then, seek out advice. Not the hot tip from the neighbour’s barbecue, but professional advice. A good first point of call would be to attend one of Morgans’ free investment workshops, running every Wednesday evening for the month of May. Michael Sheridan Adv Dip.FP, FINANCIAL PLANNER, Authorised Representative 438317
Attend a free information session Every Wednesday in May 2018 6.00pm at Morgans Port Macquarie Corner Short St & Barracks Ln, Port Macquarie Visit morgans.com.au/portmacquarie/seminar to find out more or call 6583 1735.