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Investing in shares and property

What are the key differences between shares and property?
House by the beach | Wealthify
Reading time: 6 mins

Deciding where to invest your hard-earned cash is no easy task. But there are some basic facts and rules that could help you make a decision. Here’s a few things to consider when picking your investments and choosing between shares and property.


What is a share?
Companies need to raise money to expand their business and grow. A common way to do this is to sell a portion of the company on the stock market where anybody can purchase them. The part of the company you buy is called a share, which is also known as an equity or a stock. Each share is a little slice of that business, and when you buy shares, you’ll become a shareholder in that company, and you’ll own a little part of the whole business.

The value of your shares will be determined by how well the company is doing against expectations. If the company underperforms, your shares could decrease in value, but, if the company performs well and is growing, your shares could be worth more. Also, when you hold shares, you could receive payments from the company you’re invested in – these payments are known as dividends and they can be cashed or reinvested (it’s completely up to you!).


What is property?
Generally speaking, investing in property means you’re buying a house with the intention of making a profit, either through rental income, future resale of the property, or both. But it’s not the only way to invest in bricks and mortar.

If you don’t want to, or haven’t got enough money to, buy a physical property, you could invest in Real Estate Investment Trusts (REITs). These are investment funds (hampers of investments) whose focus is to invest in a wide range of properties depending on the aims of the fund. Some REITs hold properties from one specific region and others can be more general and invest in properties of different types and located in a number of regions. As an investor, you can buy shares from REITs that are listed on the stock market, and just like traditional shares, they’ll typically pay you dividends.


So, what are the key differences between shares and property?
There’s no right or wrong answer here, and ultimately the decision is up to you. But when it comes to building your portfolio, it’s important to be familiar with the pros and cons of both shares and property.


Liquidity relates to how easily and quickly your investments can be turned into cash. The easier it is for an investment to be sold and converted to cash, the more liquid it is. And in this category, shares tend to be the big winners. It literally takes seconds to sell large company shares on the stock market, although some start-up companies can be quite illiquid! Trying to sell a physical property can take days, weeks, months, and in extreme cases, years. However, if you hold shares in a REIT, then you’ll be able to cash your property investments quickly and easily.


Property investments are more tangible than shares, although you may receive a physical share certificate from some companies – think of it as a receipt that confirms the purchase and ownership of the shares from a specific date. If you buy a house, you can physically show up and inspect your property – after all, it’s yours! And if you’re letting, you can run background checks on the tenants and do repairs yourself to preserve the value of your property - you’re in full control. With shares, you don’t always have as much control. Although you may have the right to vote and have a say in key business decisions, you’ll need to hold a significant number of shares to be able to drive real change and influence the overall strategy of a business.


Buying shares is easy and affordable. Obviously, if you’re picking your own shares, you’ll need to research companies and analyse market data, but that’s only if you feel comfortable doing it. If you’re too busy or don’t feel confident enough to do it all by yourself, you can seek the help of investment experts who will do the investing for you. Similarly, investing in REITs can easily be done with the help of investment professionals.

Buying a house, on the other hand, is a bit more complicated and requires more funds. As of March 2020, the average house in the UK costs around £231,8551 – needless to say, not everybody will be able to find the cash to pay the full purchase price and many will instead apply for a mortgage. But having a mortgage means that you’ll need to make regular repayments to your lender (plus interest). And that’s not all! You’ll also need to pay taxes and insurance. Investing in bricks and mortar can be a pricey investment, so it’s important to consider all the costs that are involved and plan ahead to avoid losing money.


As with any investment, with both shares and property, there’s a risk you could lose money and end up with less than you initially invested. But shares and property aren’t equal in terms of risk. Typically, shares are considered a bit riskier than property. Why, you ask? Well, share prices can experience extreme fluctuations over the short-term. Your £50 share may go to £10 or £90 in a matter of days or even hours. There’s no denying it, these unpredictable ups and downs can be unsettling, but they’re part and parcel of investing in shares. And as an investor, it’s important to learn to live with the bumps and adopt the strategies that could help lessen the impact of market downturns on your investment plan. For instance, remaining invested over the long-term can help you ride out market bumps and maximise your potential profits.

Buying a house is a bit less risky as prices experience less fluctuations. Take the average house price in the UK between March 2019 and March 2020. It almost consistently, but slowly, goes up. In one year, it rose by £4,751 – that’s a 2.09% increase in 12 months2. However, this doesn’t mean that property investments are 100% safe. Like any investment, property doesn’t guarantee returns and your capital remains at risk. The financial crisis in 2008 is a great reminder of this as house prices fell by 16.2%3. So, if you’re looking to invest in property, you’ll need to be prepared to face potential bumps and this could mean adopting a long-term investment strategy.


Consider diversifying your portfolio
If you can’t decide between shares and property, we don’t blame you. But who said you have to choose? As an investor, you can have both, shares and property, whether it’s a physical house or REITs. There’s a saying that goes ‘don’t put all your eggs in the same basket’ and in the world of investing, following this motto could help you mitigate risk and make the most of your investment journey. By diversifying your portfolio, or spreading your money across investments types (e.g. shares, bonds, property) and regions, you’re effectively reducing the risk of losing everything since poorly performing investments can be balanced out by others doing well.

Building a diversified portfolio can be time consuming and requires a lot of research. So, if you don’t have time or don’t feel like doing it yourself, there are other options worth considering. With robo investing platforms, like Wealthify, the hard work is done for you. All you need to do is choose how much you want to invest and select the risk level that suits your needs. Then, we’ll build you a diversified portfolio containing the right mix of investments and we’ll manage your Plan and make adjustments, if needed, to keep it on track with your investment style.


1: https://landregistry.data.gov.uk/app/ukhpi

2: https://landregistry.data.gov.uk/app/ukhpi/browse

3: https://www.telegraph.co.uk/finance/property/house-prices/4075138/UK-house-prices-suffered-record-drop-in-2008.html


Past performance is not a reliable indicator of future results.


Please remember the value of your investments can go down as well as up, and you could get back less than invested.


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