well there is endless chatter about this. Ask people who have money how they made their first 5mill and they will generally say something like :
- I bought a rundown property then sold it, and then I did it 20 more times and then I got greedy and went into shopping malls etc
- I ran a business and then I develloped a factory or office or something and then my business got bigger etc.
None of them I have met said "sonny jim, I made my first couple mill by buying stocks and trading or picking them real good". Why I wondered when so many people are attracted to the stockmarket likes moths to a light. why, why, why...
Well I think it has a lot to do with the fact that stocks in the last 50 years have been a crap risk adjusted return (RAR) investment. Now I love the stockmarket, love it to death, but if you're trying to scratch up your fortune, it is probably not a great place to be for very long because you cannot leverage adequately or if you do, tend to get blown out over long term periods (10+ years).
Compare sydney house in the last 10 years (14%pa) with XAO (12%pa). Be pesimistic and assume the housing market is frothy and this time series is not representative. Say the property market will be stagnant for the next 4 years.
We have : Syd residential - 10%pa
XAO - 14%pa
Over the 14 year time period.
Standard deviation of returns : Syd residential - 4.26%
XAO - 12%
Whoa ! The RAR for XAO sucks ! Would you be more likely to survive being levered 70% to the allords for a decade (with margin calls etc) or to sydney residential. I think the latter is much more probable.
So I think the variance adjusted return is much better for property, and that is why people can lever successfully and far more initial millions have been made here than in picking stocks (as most stock pickers do worse than the index, and even the index is too volatile to lever very much anyway).
I think stocks are great to have a look around before wading back into property. But it is only a sideline and a distraction. I reckon the big bickies are really in property for a small to medium investor like me .