Should S’poreans Invest in Stocks or Property?

It’s one of the age old debates: Stocks or property? Chicken or egg? Is the world round or flat? “Uh, yeah, I’m pretty sure we know it’s round by now.” Yeah, but we were also pretty sure Bardot could sing. I’m not a trusting soul, and you shouldn’t be either. If you’re going to risk that hard earned capital, you’d better know what to expect. So, will it be stocks or property?

 

Accounts by hand

Are you just pretending to nod and understand? Because I’ve been comparing my grocery bills for the past hour.

 

Investing in Stocks

Around 2007, many Singaporean stock investors turned to property because of the now-defunct DPS (deferred payment scheme). The left the inaccurate impression that property investors and stock traders are the same breed.

In truth, it’s easier to move from stocks to property than vice versa.

But as measures to prevent house flipping kicked in, many of those pseudo-property dealers have returned to paper stocks. The main advantages of stock trading are:

  • Less capital required
  • Faster growth
  • Diversification is easier
  • Higher Liquidity

 

Ancient newspaper

My news sources are a little old.

 

Less Capital Required

Stocks are easier to get into than property. Mind you, this is subjective: Compared to 10 lots of Google stock, a resale flat costs a pittance.

But you can choose to deal with lower priced stocks. Many investors start with a capital of $5000 – $10,000. You can even start with $2000, if you don’t mind standing the same chance as Frosty the Snowman during napalm testing. It’s a far cry from property investments, where even $350,000 is considered a comparatively small amount.

Stock trading also provides easy leverage. Simply put, it’s easier to borrow money for stocks than for housing.

 

Faster Growth

As an investment, residential property is prized for capital appreciation. In other words, investors count on the property growing in value; and that isn’t the kind of thing you time your hard boiled eggs to.

The property cycle is slow, compared to the frenzied movements of the stock market. Dealing with stocks, you can grow your money in a matter of days. If you’re lucky, you can grow it in hours. But property is a slow-and-steady investment, where you can expect to wait around five to 10 years before cashing in.

For that reason, stocks are often preferred by older investors. Don’t mean to be rude but some of them have, uh, less time.

 

Guy shining shoes

“Wait, the market just turned. Change places.”

 

Diversification is Easier

Actually, you can diversify property investments easily; assuming your capital resembles the GDP of a small third world country. Most of us can afford to buy stocks in four or five different companies. But not many of us can afford multiple properties.

But let’s put capital aside: An important feature of stocks is they way they’re often “bundled”.

Exchange Traded Funds, for example, are a basket of different stocks. These are handled by a fund manager, so you don’t even need to pick the right assortment. Because the “baskets of goods” are assembled by experts, you don’t need the know-how to cherry-pick your investments.

 

Higher Liquidity

If things head south, you can liquidate your stock investments in minutes. It’s as simple as picking up the phone, calling your broker, and making crying sounds.

This doesn’t work with property. Once you’ve signed the loan for a house, you can’t call your bank and say: “Oh, I need money now, so is it okay if we just cancel?”

Even if you already own the property, how fast can your agent sell it? Even the best agents could take months. They need to advertise, show buyers around, and check valuations. After that, said buyers may take even longer to get their financing.

 

Investing in Property

 

Tall building

“We’ve reached new limits. No I mean literally, we broke the budget limit again.”

 

Comparing property to stocks is like comparing a tank to a race car. It’s not as fast or glamorous, but it’s the final word in security.

Main advantages of property include:

  • Greater resilience to down markets
  • Cash-Generating Assets
  • Easier management

 

Greater Resilience to Down Markets

According to property investor Mr. Charlie Sng:

You can see that when property prices drop, such as in April this year, the movement is very small. Less than one percent. If you check the history of property trends in Singapore, you will see that even drops of 3% – 5% are rare.

But stocks can easily fall 10% – 20% in a few days. You may make money faster in stocks, but you can lose faster also.”

 

Cash-Generating Assets

You can’t rent out your stocks. The only way stocks generate cash is through dividends (which are not always guaranteed), or by being sold.

With property, you can rent out rooms or apartments. In Singapore, it’s common for rental income to at least cover loan repayments. If you did your homework and picked a good location, your monthly rent can leave you with a surplus after home loan repayments.

But do note that commercial properties provide higher rental yields; residential properties are mostly kept for capital appreciation. For more on landlord issues, follow us on Facebook; we look into it periodically.

 

ATM machine

I didn’t lie what. There IS a cash generating asset in this area.

 

Easier Management

Stock trading is considered a high-stress investment method. Unless you have the temperament of a very bored rock, you’re more likely to end up in counselling than with a billion dollars.

Because of the rapid movements in the stock market, investors are constantly on their toes. Imagine stressing over your stock picks in the middle of the work day; can you handle that and still do good work?

Emotions aside, property requires less homework. You don’t need to start learning fundamental and technical analysis, or how to read candlesticks. A property investor can get rich without ever hearing names like Nisson and Demark.

 

In Conclusion…

When property is an option, it’s hard to recommend stocks instead. It’s best to try stock investments only if you understand the market and the nature of the stocks; otherwise, you’re trying to run a restaurant without knowing how to cook.

Stocks will always be a faster way to make money, but they’ll never be a layman’s game. Property offers fewer ways to go wrong; and because of the slow time frame, you’ll find it easier to think things through.

Image Credits:
kenteegardin, Aranha, epSos.de, photo_gratis,

Get more Personal Finance tips and tricks on www.MoneySmart.sg

Click to Compare Singapore Home Loans, Car Insurance and Credit Cards on our other sites.



More From MoneySmart
  • Ford plants a new Mustang on the Empire State Building in style 43 minutes ago
    Ford plants a new Mustang on the Empire State Building in style

    Fifty years ago this week, Ford made history by staging the greatest car launch in history — building up the drama around its new Mustang with stunts like papering over dealership windows and landing on the covers of both Time and Newsweek magazine. To celebrate its anniversary, Ford re-created a stunt it last pulled off in 1965 — landing a new Mustang on the 86th floor of the Empire State Building.

  • All-new 2015 Toyota Camry becomes an edgier appliance 1 hour 14 minutes ago
    All-new 2015 Toyota Camry becomes an edgier appliance

    Toyota finds itself in a tricky situation. Those that enjoy cars as more than a simple means of transportation think of the Camry as a bland spongecake gone stale. And yet it's been the best-selling vehicle in the entire industry for the past 12 years, with a car rolling off the production line every 65 seconds. So how do you add flavor to your insipid dish without alienating your loyal -- and vast -- customer base? Enter the 2015 Camry: Toyota's attempt to engage enthusiasts while appeasing to those that think a turbo is nothing but make-believe snail.

  • New Hyundai Sonata grows into a large contender 1 hour 17 minutes ago
    New Hyundai Sonata grows into a large contender

    So it’s taken a while, but Hyundai is in the big leagues now. There is rife evidence of this in its sales numbers, reliability ratings and white paper indices, but the most telling indicator to us, perhaps, is that Hyundai no longer feels the need to overdesign or mimic other automobile designs as if to say, “Look, we can build good cars, too! They look just like these other nice ones!”

  • Supermodel Qi Qi is afraid of flying
    Supermodel Qi Qi is afraid of flying

    The supermodel said that she will take her daughter in a vacation but will try to avoid boarding a plane

  • One dead as S. Korea ferry with 476 passengers sinks
    One dead as S. Korea ferry with 476 passengers sinks

    South Korea's coastguard said Wednesday one person had been killed as it struggled to rescue 476 people -- mostly high school students -- aboard a ferry that ran aground and sank off the southern coast. "The ferry is almost completely submerged," Lee said, adding that a detachment of South Korean Navy SEALS were taking part in the rescue. Of the 450 passengers on board the ferry bound for the southern resort island of Jeju, 325 were students from a high school in Ansan, south of Seoul. The 6,825-tonne ferry, which had sailed out of the western port of Incheon on Tuesday evening, ran into trouble some 20 kilometres (13 miles) off the island of Byungpoong.

  • ‘Huge’ Hindu, Buddhist statues against Islam, ex-judge says
    ‘Huge’ Hindu, Buddhist statues against Islam, ex-judge says

    KUALA LUMPUR, April 16 — The “huge” statues at a Hindu temple in Batu Caves and Buddhist temple in Penang are an affront to Islam as the religion forbids idolatry, a retired Court of Appeals judge...