It’s common for there to be a degree of bias among investors when it comes to their preferred types of investment. Property investors often prefer to stick to investing in property, while share investors prefer to focus on the stock market.
As an individual investor however, your priority should not be to stick to one type of investment arbitrarily, but rather to earn the most attractive rewards possible at your desired level of risk. Here are 3 very good reasons that property investors should also own shares:
- To diversify
One of the most time-honoured principles in investing is that of diversification. Spreading your eggs out into many baskets reduces the danger if any one basket is dropped. As a property investor, you’re already heavily exposed to the Australian housing and banking market. It might not be very clever, then, to own shares in Commonwealth Bank of Australia (ASX: CBA) or Nick Scali Limited (ASX: NCK), both of which are also sensitive to the Australian housing market.
Instead, own something like CSL Limited (ASX: CSL), a high-quality international healthcare company, Blackmores Limited (ASX: BKL), a growing vitamin business, or Hansen Technologies Limited (ASX: HSN), a billing software company. None of these businesses appears likely to be seriously impacted by a property crash.
- To earn an income stream that doesn’t require debt
Buying a property generally involves getting big loans from a bank. It also puts your assets under a cloud for many years, where an inability to meet repayments – such as in the event of serious illness – could see them repossessed by the lender.
One benefit of shares is that you own them outright, and they will generate income for you without that income having to be spent on loan repayments. Even better, you can sell shares in days if you need to free up money from your investments for urgent expenses.
Of course, companies themselves can carry a lot of debt, so you should look for businesses with a minimal debt load. Flight Centre Travel Group Ltd (ASX: FLT) is one company that pays an attractive dividend and has no debt.
- To benefit from your long-term mindset
If you’re a buy and hold property investor, you’ve shown that you’re willing to think in terms of decades, not just years or months. Many share investors lack that ability. Use your long-term owners mindset to generate attractive, long-term income from shares – and if you’re not convinced of the potential benefits, just look at a 10-year price chart of something like TPG Telecom Ltd (ASX: TPM).
At the end of the day, property and shares are just two different asset classes. Each have their own benefits, and there are several very good reasons that property investors should also own shares.
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Motley Fool contributor Sean O'Neill owns shares of Flight Centre Travel Group Limited. The Motley Fool Australia owns shares of Hansen Technologies. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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