Weighing up Property and Shares
There's a fundamental difference between investing in shares and property, a reader says in an email.
Wednesday, April 20th 2005, 8:42AM
by The Landlord
"With a stock there is always the risk of bankruptcy of the entity you invest in, and the investment you make becoming worthless," he writes."For anyone who invested in the likes of Chase Corp, Judge Corp, Equiticorp and any other corp you can think of in the late 80s, the risk is very real. More recently, think of just about any tech stock apart from Provenco." Property, on the other hand, doesn’t become worthless.
That's quite true. But there's another important difference, too. It's easy to invest in many shares at once, via a share fund. It's much harder to do that with rental property, which is the way most New Zealanders invest in property.
In a good share fund, while a few of the fund's shares might become worthless, there's virtually no chance the whole fund will.
Note, though, that I did say a "good" fund. Luckily, there was no fund in the 80s that invested only in the "corps" that became corpses. There were, though, 1990s funds that concentrated on tech shares, which soared and then plunged.
I'm not talking about those sorts of funds, which concentrate on one type of share. The very point of share funds is diversification. A good fund spreads its investments across many industries, and also preferably companies of different sizes.
If you invest in such a fund, over the long term the poor performance of some shares will be outweighed by the good performance of others.
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