In the world of investments, the two most preferred options are shares and property. Investing in shares refers to purchasing shares of company ownership. These small shares are called stocks. On the other hand, an investment property is buying real estate to generate an income source through appreciation or rental income.
Once you make the final decision, you may take help from your financial advisor to complete the whole procedure. This post discusses some of the important factors you have to consider before finalising your decision.
The beneficial factor about liquid investments is that you can easily turn them into cash. These investments prove helpful when you need some urgent money.
In this regard, shares are an effective option. In larger share markets such as the ASX (Australian Securities Exchange Limited), a huge number of sellers and buyers are brought together in one place, which, in turn, provides excellent liquidity.
Here, the transaction expenses to sell and buy are much lower. Not only that, but the settlement also occurs faster. Through the T+2 (trade date plus 2 working days) settlement process, you will receive your cash within 3 days of selling your shares.
In contrast, purchasing or selling a property does not deliver faster results. Final settlement can take several months. Transaction costs are also higher, and you have to bear stamp duties, real estate agent fees, and other expenses.
So, if you want to invest in liquid assets, investing in shares is the best option you can prefer.
If you prefer tangibility, choose to invest in properties. In this case, you will also have the option to make renovations to add more value to your purchased property. In short, if you want to have more control over the asset you have invested in, buying a property is the best option.
- On the other hand, shares do not offer such tangibility. For example, suppose you hold shares in a retailer or a big bank. But it doesn’t mean that you visit their physical store or office and can decide what colour should be used for the walls.
- There is also a risk of profit dilution in the case of purchasing shares. Sometimes, the board of directors of a company issues new shares almost instantly, maybe to fund a new project.
- Now, if you hold shares in that company and do not purchase a considerable amount of the new shares, your share of profits may get diluted. So, before investing in shares of a large company, it is always recommended to take help from any advisory services in Perth.
Whether you choose to invest in shares or property, you must not forget the tax factor.
In Australia, capital gains tax (CGT) is imposed on investment properties and shares. Your earnings through rents or dividends will be subject to income tax.
- In the case of a property, you may face negative gearing. It refers to the loss incurred after deducting necessary costs, including interest expenses from the rental income. Negative gearing proves effective at the tax time when you have to pay less tax because of receiving a reduced taxable income.
- This strategy is popular among high-income Australians because they can effectively reduce their taxes while increasing their wealth through appreciation.
- Negative gearing also applies to shares, especially if you take a margin loan to invest in the stocks.
- Even though there is a risk because of the fluctuating nature of share prices, it can reduce your taxes. If the loan interest expenses increase than what you receive from the dividends, you can use that loss for tax purposes.
- The key tax advantage associated with shares is the franking credits you can receive from the company when you invest in dividend-paying shares. You will receive 100% of the tax you have paid on the dividends, but the stakes need to be fully franked for that. Franking credits will save you from getting taxed twice.
On the other hand, the key tax advantage of an investment property is depreciation. The best thing is that while you do not need to pay it out of your own pocket, you can use it to decrease your taxable income.
For a younger property, the depreciation will be much higher. Depreciation can be claimed not only on the building but also on the internal fittings and fixtures and thus can help you make thousands of dollars.
So, in terms of tax benefits, both shares and properties can be a preferable option. However, always consult your income tax return consultant before making any big decision.
If you do not want to put much effort into your invested assets, choose to buy shares. Investing in shares involves only a few steps.
- Choosing the best investing approach
- Creating a brokerage account
- Researching potential companies
- Thorough monitoring of company performance and reports
If you want instant diversification, choose to invest in exchange-traded funds (ETFs).
But investing in properties requires more effort to be put on.
- First of all, you have to take the necessary action to keep the property in perfect condition. Maintenance is a key factor you must focus on when you own a property.
- You will also be required to manage your tenants, who will pay your rent monthly or weekly.
- The best thing will be appointing a professional property manager to look after the asset. While it may give you more time to relax, it will cost you significant money.
How to Decide?
While finalising your decision, you must consider your personal situation.
- If you want to have more control over your investment and can invest a lot of time managing the assets, choosing an investment property is the best alternative.
- In contrast, if your preference is flexibility with your investments, fluctuating price is not an issue for you, and you do not have much time to look after your invested assets, choose shares.
Final Words
Any certified tax consultant can help you with your income tax return in Perth. For contacts, you may get in touch with the top tax accounting firm.
