Bricks or Markets

2ba4t

You all out there who are wise and wonderful.

If I need all my income from my market dividends in order to live, then am I not very exposed?

1. if the market drops for a long period I starve
2. I can actually lose money completely if companies go end up
3. if I use all the income and dividends then after say 10 years my initial capital will still be the same capital sum, which inflation will have reduced by 30% at least. If this were in bricks and mortar then I may not GAIN in buying power, but I will have the same relative capital AND have had the income from rents. This applies even allowing for inflation, management costs, voids, tax, and repairs.

Would one not be richer, both in income and capital security and growth, with sensibly purchased property, fully managed?

But I just do not get it. HELP, please and keep it simple.

Thank you so much - I have learnt masses from this site.

I realise that markets all go up in their capital value of shares gradually across the market over the years. That is apparently their capital gain which is parallel to a house value rising. The saying is ‘real estate doubles every 20 years’. Do market investments have a parallel rise of capital value? Or is that comparison irrelevant.

Having factored in all the market rises and falls, bulls and bears, bubbles, etc and equally taking account of all the fees, expenses and negatives of renting property out; my question is after 20 years or 40, or 60 is the following roughly true:

If you regularly withdraw all dividends and income, do shares across the board in a broad mixed portfolio go up the same as property from which you have equally withdrawn all rental income.

That is, even if the income is comparable and much less hard work, do shares go up in capital value broadly the same as bricks?

Malthusian

2ba4t wrote: »

1. if the market drops for a long period I starve

Nope. Many companies will continue paying dividends through market drops.

2. I can actually lose money completely if companies go end up

Not if you properly diversify. A few companies going bust in a portfolio of thousands will be lost among the daily ups and downs.

A properly diversified non-geared stockmarket portfolio has minimal risk of permanent loss unless you panic and cash in (or are forced to cash in by not holding enough cash). An individual property, by contrast, has a real risk of permanent loss. Property indices may go up but individual properties don't always.

3. if I use all the income and dividends then after say 10 years my initial capital will still be the same capital sum, which inflation will have reduced by 30% at least.

Nope. Unless you tilt your portfolio massively towards income-focused funds and high-yielding shares, you would expect the capital value of your portfolio to increase just as a property would. Not all houses increase in value anyway.

Living on dividends from company shares is a very old-fashioned strategy anyway. It made more sense in the days where you didn't have fund platform accounts which could hold all your shares / funds and pay a fixed monthly amount from your account.

If this were in bricks and mortar then I may not GAIN in buying power, but I will have the same relative capital AND have had the income from rents. This applies even allowing for inflation, management costs, voids, tax, and repairs.

So you're assuming that your rental income will cover management costs, voids, tax, and repairs, and that the capital value of the property will increase at least in line with inflation. There are hundreds of thousands of properties across the country where one or both hasn't been the case.

That is, even if the income is comparable and much less hard work, do shares go up in capital value broadly the same as bricks?

kidmugsy

I don't know anyone ruined by S&S. I know one person ruined by property - and UK owner-occupied property at that.

People don't always talk about their financial difficulties, but I suspect I've known more people put in a horrible position by lack of wills having been drawn up than by investing calamities.

Naturally this reminds me that our own wills are out of date!

System

One thing you can do with shares but you can't do with property is sell a small percentage of it. So if for whatever reason you find yourself needing more money you can sell off a few shares but you'd have to sell the property along with all the costs that that entails which reduces how much you get. And unlike shares in a tax free wrapper like an ISA the cost of the property sale could see you facing a CGT bill.

El_Torro

2ba4t wrote: »

If I need all my income from my market dividends in order to live, then am I not very exposed?

1. if the market drops for a long period I starve

Your post is big, and other posters have already covered the points well. I just wanted to elaborate on this point.


Having all your money invested in income funds and living off the dividends is one way to go, but as you rightly point out if you do this you need to be sure that your investments are big enough to cover your needs during the good times and the bad. Companies will continue to pay dividends during recessions, though maybe not as large as during the good times.

What a lot of investors do is keep a cash buffer, maybe even a few years worth. This can be used when investments are low to prevent selling low, then topped up by selling when investments are on a high.


As to the root of your question of whether buy to let or shares are better, like a lot of things it depends a lot on who you ask. This is the Savings & Investments forum so it shouldn't be a surprise that a lot of the regular posters here prefer shares. If you go to one of the other MSE forums that focusses more on property then the answers might be very different.



Personally I have both a buy to let property and shares. I became an "accidental landlord" a few years ago and have kept the property. In the long run I might be better off selling and investing in shares, though the property has served me well til now and in my view a bit of diversity is probably not a bad thing.

dividendhero

One huge difference between shares and property is that shares an an active investment wheras property is passive.

To elaborate on this, when you own shares in say Diageo you own a little piece of the action - in this case breweries and distilleries worldwide. They produce booze and profits :beer:

A house is a passive investment in the sense that it's a piece of land with bricks on it.

In the long term shares have outperformed property, mainly for this very reason

bostonerimus

Why not do both "bricks and markets"? Investing is not a binary choice, indeed, one basic requirement of a portfolio for most people is diversity.