Property V Financial Asset Investment 201803 August 2018
In my experience of providing financial advice, the title of this Blog tends to send you one way or the other. A bit like water and oil, sometimes they do not mix and if they do, the emulsion created can be a bit sludgy. I am not convinced that 'V' for versus is correct, because each has its merits.
When making any investment, invariably the investor is looking for annual yield, capital growth or both. The ways these may be achieved vary, particularly in the two areas we are considering.
One important point that should be noted is that both elements are negatively correlated to each other, which can have its advantages and might be a good reason to consider investment in both areas. 'Spreading your investment eggs' as a historic term might suggest. Both should normally be viewed as longer term investments.
Referring back to the advantages of both, property has an advantage of being tangible. You can see it, visit it and keep an eye on the tenant if you want, within reason. The tax advantages for buy-to-let arrangements, particularly those with mortgage finance, are changing and these phased changes are reducing final yields and there are costs to buy and sell. More on this can be found here: https://www.which.co.uk/money/tax/income-tax/tax-on-property-and-rental-income/buy-to-let-mortgage-tax-relief-changes-explained-atnsv0j6j782
The advantages of investments may be lower cost entry to financial assets, use of tax allowances, such as ISAs, transparency in most cases, and liquidity if a sale of funds is needed.
There are of course potential disadvantages to both options, such as volatility in financial asset holdings and void rent periods for property, to note a couple. Concentration of risk in one property versus diversification in financial assets is also an important factor.
Both investments can use Capital Gains Tax allowances where available (£11,700 in this tax year). We are however seeing a sentiment change away from property at this time as UK markets have hardened somewhat in recent times, although this is not an indication of future market changes or performance.
Which is better? As you can see in the note above, both have their merits and disadvantages which can change over time. Therefore, we have had many instances in discussing investment that the answer may well be both.
Before investing either way, speak to the team at Chapters Financial about your needs and objectives for your capital into the future. No individual advice is provided during the course of this Blog.
Keith Churchouse FPFS
Director, CFP Chartered FCSI
Chartered Financial Planner
Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899