Property Vs Shares: Shares Better Than Property In Long Run

A new joint report published by the ASX and Russell Investments has assessed the long-term performance of different asset classes both in Australia and overseas. Australian shares provided a marginally higher long-term return after tax over Australian residential property. Property won out in the medium term.

Before Tax & After Costs Returns

Australian residential property provided superior returns before tax with Australian shares coming in close behind. Both asset classes provided higher returns than cash and fixed income over 3 year investment horizons. Global shares were one of the worst performers over a 10 year horizon. Over the past 10 years the S&P 500 index returned only 2.5% p.a. to Australian investors. This is partly due to the appreciation of the AUD against the USD.

Annual % Return Of Different Investment Classes Before Tax

  10 years 25 years
Property 10.1% 11.6%
Shares 8.4% 10.8%
AU Bonds 5.8% 9.8%

After Tax & After Costs Returns

Australian residential property outperformed shares in the medium run (10 years) due to gearing benefits. However over the longer term (20 to 25 years) Australian shares outperformed all other asset classes.

Annual % Return For Lowest Tax Rate

  10 years 20 years 25 years
Property 9.2% 9.2% 10.5%
Shares 8.6% 11.2% 11.1%

Annual % Return For Highest Tax Rate

  10 years 20 years 25 years
Property 7.6% 7.7% 8.8%
Shares 6.4% 9.0% 8.9%

Why do shares outperform property after tax?

Russell Investments state that two key factors leading to the superior performance of shares as:

  1. Franking Credits
  2. Generous tax structure of Superannuation funds

Cash A Poor Investment For The Wealthy

The report also found that the return on cash for those paying the highest marginal tax rate is worse than inflation over the long term!

Investing For The Long Term

While both property and shares have seen booms and pullbacks in the short term, in the long run returns are strong and fairly stable. Even with short term volatility both Australian Shares and Australian residential property provide better long term performance than cash and fixed-income investments.

Compare Shares & Property

Use our Investment Calculator to compare shares and property over the long run. You can also watch our Shares Vs. Property comparison video. The full report this article is based on can be found at the Russell Investments website here.