That said, property and stocks are arguably the most common assets in the market, but how exactly do they compare?
Returns
Nine times out of ten, the first thing an investor will look for in an asset is its potential returns. While this will include analysing its past performance and long-term growth, you should also look to the future - are there more increases on the horizon? When it comes down to it, these forecasts will indicate how profitable the asset could be.
The potential returns that stocks can offer are one of the key reasons investors find themselves attracted to this market. According to investment bank, Goldman Sachs, 10-year returns for the stock market average around 9.2%, highlighting the potential for capital growth over a long-term period.
While two-thirds of the population have plans to invest in stocks in the future, the opportunities that come with buy-to-let property are making it an increasingly attractive investment. Unlike alternative assets, property can offer two streams of income - capital growth and rental returns.
Not only has the average UK property price increased by 64% in the last ten years - equating to a rise of £107,000 - but the average UK rent is on track to reach £1,000 in the coming months. This means that while there is arguably more flexibility within the stock market, the returns are incomparable, especially with the short- and long-term income that buy-to-let property delivers.
Risks
If the last two years have taught us anything, it’s the value of a resilient investment asset. Competitive returns are crucial, but the added benefit of minimal risk can make the world of difference.
Before the pandemic, the stock market hit its peak. With a buoyant economy and attractive share prices, the stock market was a serious contender for investors. However, as Covid-19 spiralled throughout the globe, this economic turmoil catalysed a freefall in share prices. This was largely down to the sensitivity of the stock market - it’s reliant on both the wider economy and inflation.
This means that despite the UK’s economic recovery, alterations in inflation and interest rates are only increasing the risks of the stock market. On the other hand, this turbulence has only strengthened the UK property market. Historically low-interest rates and generous tax incentives saw property prices reach their highest point on record, further pushed up by pent-up demand and the country’s chronic undersupply of property.
As a tangible investment asset, the risks of buy-to-let property have always been low in comparison to stocks. Even with the ongoing uncertainty surrounding inflation and rising interest rates, property prices are expected to increase by 20% in the next five years, highlighting the stability of this investment asset.
The Bottom Line
When it comes down to it, which asset you choose should depend on your own financial plan. It’s crucial to consider which asset would be best for reaching your investment goals and whether you’re prioritising short- or long-term returns.
Property and stocks both come with their own advantages and disadvantages, from their risk to their potential for returns. While property tends to be a more reliable investment asset with considerably less risk, the best-case scenario for investors is to have a portfolio made up of both stocks and buy-to-let property.
Despite being less volatile than stocks, property still has its risks - like all investments. The key with any successful portfolio is to offset these as much as possible, which can be achieved with diversification.
By having a combination of stocks and property within a single portfolio, you’ll not only benefit from multiple streams of income, but the inevitable highs and lows of each market will usually offset one another. In turn, this will usually minimise the overall impact on your portfolio while maximising your returns.
