In pursuit of becoming millionaires, investors may wonder whether they'll get their money quicker by buying property or shares.
Buying a property continues to be a widely held goal amongst Australians. According to the 2020-2021 Census, 66% of Australian households owned their own homes, and 2.24 million taxpayers owned an investment property.
Alternatively, according to the 2023 Australian Investor Study, 51% of Australia's adult population owns shares.
But, which is the better investment?
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Over the long term – shares vs property
According to the 2024 Vanguard Index Chart, Australian shares have increased at a compound annual growth rate (CAGR) of 9.1% over the past 30 years.
US shares have been even more impressive, growing at an annual CAGR of 11.1% since 1994.
Alternatively, Australian listed property (that is, listed on the sharemarket through vehicles such as REITs) has risen at a CAGR of 7.8% over the same period.
According to CoreLogic data, Australian homes (unlisted property) have increased at an average CAGR of 6.4% over the past 30 years.
Becoming a millionaire
Based on historical returns, those with a starting balance of $131,500 (the average first-home buyer deposit today in Australia) who invest $2,000 a month can become millionaires sooner if they invest in shares.
Those who invest in ASX shares will become a millionaire in less than 13 years. At year 13, they will be worth $1,026,184
Investors who picked US shares would get there in under 12 years. In year 12, they would be worth $1,100,879.
Alternatively, those who invested the same funds over the same schedule into listed property would take around 14 years to become millionaires, with a net worth of $1,001,048 in year 14.
And for those who bought an unlisted property (such as a residential home), it would take even longer. Specifically, it would take 15 years to be worth $1,035,126.
Other factors
Of course, there are other factors to consider when choosing between property and shares to invest in.
Evidently, the result is likely to depend on which ASX shares are selected and the type of property invested in. Over the past five years, US technology stocks have been standout performers. In particular, Nvidia Corp (NASDAQ: NVDA) has surged more than 1,400%.
Certain property markets have also done better than others. For example, since 2020, Adelaide has been the top-performing capital city, with house prices increasing by 82% over the time frame. Not far behind is Perth and Brisbane, which both increased 81% over the period.
Shares also offer greater diversification and higher liquidity, compared to property. While investors cannot reduce their property exposure by selling off a bedroom, they can easily sell off a portion of their share portfolio.
There are also higher transaction costs associated with buying a property over shares. These include agent fees, advertising, and conveyancing fees. If the property is rented out, chances are that maintenance costs will also be incurred. Over the investment period, owners will also be required to pay council rates, water charges, and insurance. These expenses are likely to further detract from unlisted real estate investors' returns and delay their journey to becoming a millionaire.
Foolish Takeaway
Based on the past 30 years, investing in shares has provided the quickest pathway to becoming a millionaire. Of course, this is a market average, and share market returns can vary extensively between individual portfolios.
This analysis also assumes that an investment property is purchased, and the investor rents the house or apartment they live in. Becoming a millionaire through an owner-occupied property is a whole different story.
