3 reasons I prefer buying ASX shares over an investment property

Here's why I think shares are better than property for a beginner investor…

| More on:
A man holds up his hand with 3 fingers up

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Ah… ASX shares versus property. The age-old debate. Shares and property are without a doubt the two asset classes that most people choose to invest their money in.

Both classes have positives and negatives, and both have returned very pleasing results over many decades. And both have their benefits and drawbacks… not to mention diehard supporters.

But when the rubber hits the road, I personally prefer shares to property. Here are three reasons why:

Why I prefer investing in ASX shares over property

It's easier to get started

The whole point of investing over the long term is to enjoy the wonders of compound interest. And compound interest becomes more powerful the more time one gives it to work its magic.

Unfortunately, it can take years and years to save up enough to get a deposit for a property and get your foot in the door. That's years that your money is sitting in a bank account and not compounding.

On the other hand, you can get started with ASX shares with as little as $500 (and sometimes even less than that). That means you can start putting your money to work in compounding assets almost as soon as you decide to start investing.

Diversification is simple

You will hear about the benefits of diversification endlessly when you start your investing journey. It's the application of the old adage that one shouldn't put all of one's eggs in one basket.

Achieving a diversified ASX share portfolio is not difficult. It's a relatively simple task of finding 10-20 quality ASX shares that are exposed to different industries. Using an index fund makes building a diversified portfolio even easier.

But with property, only the most elite investors can really build a diversified property portfolio. When you buy a property, it will be located in one suburb, in one state, in one country.

You can't get any less diversified than that. If you sank $1 million into a single ASX share, most investors would tell you it is incredibly risky. But with property, there's no other option for most investors starting out.

Investing in ASX shares is just cheaper

When it comes to buying ASX shares, it's about as cheap as you can get. The only real cost to buying an ASX share is brokerage. And brokerage is getting cheaper every year it seems.

A single trade will usually cost you $20 at most. And some brokerage platforms are now offering $3 brokerage or even free trades. After that, the only charges you are likely to pay are income tax on your dividends (minus any franking credits you get) and capital gains tax on any profits you make selling your shares.

In stark contrast, it's hard to list the costs of buying a property on two hands.

There's income tax you will pay if you rent the property out. Not to mention capital gains tax and land tax if you don't use your property for your own home. But then there's also the dreaded stamp duty when you buy, as well as conveyancing and legal fees, pest and building inspections, and council rates or strata charges.

All in all, everyone wants a piece of the action when you buy a property. Not so much with your ASX shares.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on How to invest

A couple sits in their lounge room with a large piggy bank on the coffee table. They smile while the male partner feeds some money into the slot while the female partner looks on with an iPad style device in her hands as though they are budgeting.
How to invest

Where to invest $8,000 in April 2024

Here's what sort of returns could be on offer from these ASX shares according to analysts.

Read more »

An ASX dividend investor lies back in a deck chair with his hands behind his head on a quiet and beautiful beach with blue sky and water in the background.
How to invest

Shares vs. property: How to generate $500 passive income per month

We run the numbers.

Read more »

A woman holds a lightbulb in one hand and a wad of cash in the other
How to invest

ASX 200 shares vs term deposits: What $5,000 invested a year ago is worth now

Which has been the superior option for investors?

Read more »

Kid on a skateboard with cardboard wings soars along the road.
How to invest

Shares vs. property: Why cheaper homes and ASX small-cap shares are rising fastest in 2024

We look into the changing trends in shares vs. property.

Read more »

Smiling young parents with their daughter dream of success.
How to invest

2 ASX shares that could help set you up for life

Analysts are saying good things about these buy-rated shares.

Read more »

a man wearing casual clothes fans a selection of Australian banknotes over his chin with an excited, widemouthed expression on his face.
How to invest

$20,000 invested in these ASX 200 shares 10 years ago is worth how much?

Would you be laughing all the way to the bank today or not?

Read more »

Busy freeway and tollway at dusk
How to invest

If inflation rebounds I'll be buying this leading ASX 200 share

Inflation doesn’t impact all ASX 200 shares equally.

Read more »

Businessman working and using Digital Tablet new business project finance investment at coffee cafe.
How to invest

Forget term deposits and listen to Warren Buffett's advice with ASX shares

Are you missing out if you buy term deposits?

Read more »