Yahoo Finance Property vs shares: Here's the best place to put your money right now
Property vs shares: Here's what is happening today and the long-term prospects for each.
It now looks like interest rates aren’t going to budge – either up or down – for a while.
They were supposed to imminently begin to fall because most of us have started hibernating and stopped spending. But the petrol price spiked even before the tensions in Gaza escalated, and there are fears gas and electricity prices will keep pushing up too.
Also by Nicole Pedersen-McKinnon:
$456 a month: The loan that will slash your mortgage repayment
5.5% savings rate: Where to find the highest interest in 11 years
Which way inflation - and, therefore, interest rates - will go next is a finely balanced thing.
So, if you have any money looking for a home, where – under these interest-rate and economic conditions – is it best to invest? Which options will flounder… and flourish?
Investing in the share market
What’s happening today: After a really shaky period where the Australian share market fell to a low not seen for seven months, shares have begun slowly rising again.
Share markets hate rate rises – just like they squeeze our finances, they pressure companies’ finances too. Last week, they appeared to get their mojo back on indications interest rates in the US might have peaked. But they then fell on Friday when higher-than-expected US inflation figures renewed prospects of a fresh State-side rise.
Long-term prospects: Shares are – effectively – on sale… they stand 7 per cent lower than the high at the end of January, which was very close to the all-time high in mid-2021 after the COVID recovery. But the conflict in the Middle East could weigh further on the market, particularly if Iran becomes involved.
On the flipside, a potential positive for returns is a possible stimulus package for economically embattled China. Now may be an opportunity for long-term investors to buy in on the cheap, with a diversified – so, spread – portfolio or diversified listed fund if you have only a small amount of money.
My top tip: Google "exchange-traded funds" or "ETFs". Remember though, if the cost of living means you have limited means, you should already have 11 per cent of your salary going into diversified market investments within your superannuation. So, your investment priorities might be elsewhere.
Investing in property
What’s happening today: After big interest-rate-induced falls in many areas, prices are back at their previous highs. The five biggest capitals are up a combined 6.3 per cent in the past year, according to the CoreLogic Daily Home Value Index, with Perth (9.4 per cent), Sydney (8.2 per cent) and Brisbane (6.4 per cent) growing the most. So, here, the ‘discounting’ may have all but disappeared. Having said that, rental vacancies are at almost zero, meaning rents are sky-high, so the income yield offered by property is still often significant.
Long-term prospects: Interest rates and where they go will be critical. One thing is for sure for now: falls have finished; the renewed price increases even have some commentators predicting the housing crisis will take decades to fix. Investors able to cope with rates higher than these appear to be creeping back into the market, replacing those who have become forced sellers.
My top tip: Do your research carefully and look for areas where bargains might still be available and tenant demand will remain strong.
The problem
Of course, there are two potential problems:
With interest rates in such flux, both shares and property investing may feel too risky for you to be comfortable right now
You may well have no spare money
But in my next column, I will show you how the average Aussie could restructure their finances to generate a typical $505 per month right now. Which you could then invest.
Part two: Should you house money in a savings account or mortgage offset account?
Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, Twitter and Instagram.
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