I received a similar type of question from time to time, repeatedly. Through my blog and through my mailing list, many readers ask about the best place to put their money. I think you probably have the same type of question popping into your mind right now.

Should you follow the herd into the latest gold rush? It seems like silver is the next precious metal that’s catching up on the appreciation on most commodities. Is unit trust worth investing? What stocks should you buy now? Isn’t borrowing money to buy a property considered a dangerous venture?  There are also questions about some new types of fancy investment scheme like swiftlet farming, palm oil plantation lot, or land banking.investment

My philosophy is simple. Most rich people got rich really quick by involving directly in businesses. Of course I don’t expect that you must be an entrepreneur to accumulate wealth, because becoming a successful entrepreneur requires not only leadership and communication skill, but also the most important of all – massive amount of action to implement the business plan.

So where else can you get great return, if not from direct involvement in business? There are two very common and proven investment choices: stocks and properties. If you are still not master investors in these two categories, you shouldn’t even bother about all the other schemes. The proof is obvious. Most affluent people either have a lot of shares of great companies, or a lot of real estate properties, or BOTH.

Which one is better?

Asking which investment is better is like asking whether a BMW is more superior to a Mercedes Benz. There really isn’t an answer but I would guide you to choose the one that’s more suitable to your personality, preferences and style, towards the end of this article.

Pros and Cons of Property Investment?

When you are buying a property, which may be a unit of a high-rise condominium, or a commercial shop lot, you are getting something very tangible. It is real in a sense that you can see it, touch it, smell it or even live in it.

Since a property cost a lot more than a unit of public-listed company share, you may find it hard to come up with the investment capital to even commit the down payment. But banks are more than welcome to lend you the rest of the money you need, as long as you have a stable income. Banks are not only betting on your ability to pay back the debt, they are also confident that the price of properties is stable and will appreciate over the long term. If you can’t pay back someday, banks are still able to recoup their losses by auctioning off your property.

This fact alone provides the greatest advantage of leveraging effect. You practically own a big piece of property just by paying as little as 10% of the property market value. When the property appreciate 10% in value, you are getting a 100% return on your 10% capital, based on the simple calculation of omitting all other related costs.

But at the time your investment property is not performing, as you want it to be, it is sucking money out of your pocket every month. It needs a lot of maintenance such as mortgage payment, utilities, and taxes. In other words, it would be like a cancer tumour that may get even bigger and at one point, it would threaten your financial survival.

Of course there are other pros and cons but it would make up a whole book if I keep on elaborating this. Let’s look at what’s offered in the stock market.

Pros and Cons of Stocks

Stock investment is so liquid. You can basically move your money from company A to company B within a few days by trading the shares. When you buy a stock of a company, you are basically investing in the management of the company, and expecting that these executives will make the company operation profitable in the coming years. Unlike investing in properties, you don’t have to be actively involved in managing what you’ve bought.

Last time, owning a share of a company means you’ll at least get a piece of paper, which is the certificate of ownership. But now, it is all done electronically. The company and business are there. It is real but you just don’t really see it. It doesn’t give you much control over the company assets and operation because you are simply giving the power to the management team to carry on their job. You are allow to cast a vote in the Annual General Meeting, but without owning majority of the company’s share, you don’t have the influence to change much of the decision. It really sounds like a more passive type of investment where you can sit and wait for your fat dividends cheques.

Now come the biggest problem of investing in stock – the roller-coaster type of price movement easily disturbs most investors. The price of stocks can experience extreme fluctuations in the short-terms, which make most investors feel uncomfortable. Without strong emotional intelligence and discipline, majority of stock investors made the wrong decision, usually at the wrong time.

Nevertheless, master investors can navigate through storm and get a very handsome return year after year, as much as over 25% per annum. The world’s richest investor, Warren Buffett for many decades, demonstrates this.

So both investments presents its respective advantages and disadvantages. The question should be boiled down to “Which one is right for you?”

Your preferred investment

Through my experience investing in both asset class, and also from the sharing of other experts in both fields, I had summarized the following for you to pick your preference.

If you:

  • Prefer to read company financial reports at home, rather than driving around to hunt for a property for sale
  • Prefer to sit back and let the management team operate a business, rather than managing your tenants
  • Prefer to make buy and sell transactions through computers or a simple phone call, rather than going through several times of negotiations

Then, stock is definitely your first choice of investment.

But if you:

  • Enjoy talking to different professionals like real estate agents, properties buyer and seller, tenants, bankers, contractors, lawyers and developers
  • Want to invest in assets that give you a lot of control such as making changes on the properties and even choosing the people you want to work with
  • Are comfortable owing banks a lot of money and are making sure that there will be other people paying your loan for you

Then, real estate is certainly your cup of tea.


KCLau
KCLau

Personal finance author and trainer

    19 replies to "Stocks VS. Properties: Which one is for YOU?"

    • Siva

      Dear Lau
      The continuos infusion of information, facts and opinions has made me wiser but also lowered my risk taking habits you have recommended some good reading sites and also introduced to many wise people who are wiling to share their views. At the end of the day, you ned to follow your own destiny. Warrant buffet said that whatever you chose to invest think through as it is your own money.
      To come back to whether you should buy property or own shares I feel both are vital for the reasons you have given (pros and cons).
      I thought age, good working knowledge and risk taking behaviour will dictate your move.
      As we grow older and have proprrty to fall back on , you may want to enhance your cash that you can spare with value investing. Well managed companies with excellent roe and dividends appeal to me. I am reluctant on new emerging markets till they can show me they are reliable. A complicated business with too many levels of focus is low on my list.
      Property in new areas but with good potential in 5-10years are worth it’s dollar if you have extra cash to park and can manage the mortgage on a longer term without wanting to reap benefits in the short term.
      Diverging to overseas e market will be in the formula once you can read the numbers and had. A good grasp of international and political movements.

      I enjoyed your posts.

      Siva

    • Kenny Ng

      To build a successful investment portfolio, it is very much dependent on individual preference, risk tolerance, emotions and discipline.

      In order to maximize your investment returns, my view is to invest in both properties and stocks. Property investment is generally considered a long haul investment journey while stocks investment provides much more flexibility to an investor. Investing in stocks can be treated as short to long term investment too as stocks investment made using value investing technique in good companies are normally held by the investor for long period of time. However, the same stock investor can also be a short term stock trader as well. He/ She could also trade stocks daily to generate quick profits.

      Another point to note is, investment portfolio diversification not only on property but also for stocks investment where it would be wise to consider investing in good company stocks in various stock exchanges (KLSE, ASX, NYSE, NASDAQ, SGX, HK…etc) instead of only focusing on one stock exchange for the purpose of risk management and to create a balance stock investment portfolio and potential gain higher returns on investment (ROI).

    • Janice

      I am more keen in investing in property. However, as now GE13 is just over, do you foresee the price of property to drop? Is it a good time now to invest?

      • KCLau

        @Janice, property price might not be affected much by the election. Nowadays, most people with money will buy property still since the currency value is depreciating due to inflation.

    • casey

      If invest in the properties, the cash flow will be tie up due to liquidity but if you invest in stock which is more flexible.

      • KCLau

        @Casey, what you said is very true.

    • Cuc Le

      Good analysis. Hope to receive further info in coming time.

    • Kathleen Tang

      Both asset classes, as you rightly highlighted, are crucial in one’s investment portfolio and depending on your personal attributes, may forgo one for the other. REITS, in my opinion, while popular because of its steady dividend income, have lost its lustre due to an increasingly declining yield. Stocks, on the other hand, provide a much higher return, if you have the guts and your homework done correctly.

      Properties, my perennial favourite, is where the action is! Once that learning curve is over, the rewards are outstanding. But I would seriously advise against joining any property investment clubs but to begin your investment journey by learning through KC Lau’s webinars for a very modest fee if you can’t stand learning through books or other means.

      • KCLau

        @Kathleen, well said! And thanks a million time for promoting my courses 🙂

    • Jacqqueliine

      Hi KC,

      Thank you very much for your email, it was very well put and even for someone who has a level 1 understanding of finance could understand. i find investments more to my palette but since you are very experinced i’d like to ask a few more questions in regards to the subject.

      1) If i invest in a company and the company goes bankrupt what happens to the value of the stock and as an investor am i liable to cover the loss of the company?

      2) A friend also advised me that if i were to look into investments that my bank account would need to have 20 times the amount i initially invest in . If this is true can you kindly explain to me why so?

      3)What is the minimum amount of lots that i must invest in to get started?

      4)What are the guidlines if i wish to be an Active Investor?

      Thank you in advance for your kind attention and entertaining my questions

      Best regards,

      Jacqqueliine

      • KCLau

        @Jacqquelline, regarding your questions:
        1. all your money invested will worth zero.
        2. this advice is from your friend, and I don’t really understand his/her reasons behind. Better ask directly from the advisor.
        3. for stocks, you can start as low as RM3000 to minimize the transaction fees. If you invest lower amount, more percentage will be paid for commission and stamp duty.
        4. to be an investor, first step is to learn as much as you can. The faster the better because time is always running out.

    • royce

      Thank KC for the explanation on prons & cons on properties & stock. Different people with different interest but i believe at the end, most people will own both properties & stock together. As this is the proven investment that provide massive income.

    • jonathan keung

      Properties Vs Stocks investment is a long draw out argument. there is no such thing as a sure winner but timing and opportunities (cost) is a factor which we need to understand (concept) between long term investment and short term holdings.

      for people like ( HK -Li Ka shing) opportunity cost and able to ride out any short term market reversal is far more valuable than just PAPER gain. most tycoons are able to buy a piece of land & hold it for period of 10 years more and sell it later and 4-6 times their initial costs. this is their test tested formula.l

      stocks trading present more opportunity to the men on the street but to get rich you need to be very street smart plus the capital to invest ( in a meaning full way). buying 2 or 3 lots will not get you rich but buying 20,000 or 30,000 lots will certainly brings you some substantial profit.

      unfortunately, trading has now becoming more like punting (daily) for most laymen which is NOT investing. We need to find a balance between meaning full investment either thru passive income ( eg properties rental ) or invest some business activities as a core interest. this is my personal viewpoint

      • KCLau

        @Jonathan,

        I value your insights.

    • Tay YZ

      Thanks for the good sharing, a good guidance for beginners out there. Another option for those who do not have big cash to invest in property & at the same time can’t stands on the roller-coaster type of stock price, probably can consider to invest in REIT which consistently gives good dividends.

    • YH Ng

      great analysis. as for me, I have tried both and have decided to invest in REITS, that is investing in properties listed in the stock markets , I believed this the best of both world. Further it is safe and low risk then investing into equity stocks of businesses.

      YH

      • KCLau

        @ YH and Tay, I agree that REIT definitely have the benefits of both world.

      • Ivan Ho

        Only from your view. Reits are stable but should be part of the portfolios of stocks.

        The richest man or most successful companys are equity owners!
        Warrent Buffett, Tan Sri Teh Public Bank, Tan Sri Quek Hong Leong…etc

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