Shares vs a geared investment property.
Higher net wealth
—
Shares
—
Property (equity)
—
Your breakdown
Updates live as you type| Calculation | Result |
|---|
The debate that never ends at Australian dinner tables
Ask ten Australians whether to put a windfall into shares or property and you will get ten confident, contradictory answers. The honest reply is that they are not really the same bet. Shares put your whole lump sum to work, fully liquid and instantly diversified. Property usually means handing over your lump sum as a deposit and borrowing four or five times more on top, so your money controls a much larger asset. This tool makes that comparison concrete: it grows your capital as a share portfolio on one side, and treats the same capital as a deposit on a geared property on the other, then projects the net wealth from each over the years you choose.
Leverage is the whole story
The reason property so often pulls ahead in these projections is leverage, plain and simple. When you borrow to buy a $700,000 home with a $150,000 deposit, growth applies to the full $700,000, not just your stake. A modest 5 percent growth rate on the property can outrun a punchier 8 percent on shares, because it is 5 percent of a far bigger number. Leverage cuts both ways though: in a falling market the same multiplier magnifies your losses, and unlike a share portfolio you cannot sell a bathroom to raise cash. The tool models an interest-only style position where your equity is the property value minus the original loan, plus or minus the running cash flow.
$150,000 over fifteen years, the default case
Take $150,000 of capital, 8 percent a year on shares, a $700,000 property growing 5 percent a year with a net holding cost of 1 percent of the price annually, over 15 years. The tool gives shares of $475,825 and property equity of $800,250, so property ends ahead by about $324,425 on these assumptions.
Notice how sensitive that gap is. Drop property growth to 4 percent or lift shares to 10 percent and the winner can flip. The default result is not a verdict on the asset classes; it is a verdict on those specific assumptions, which is exactly why you should run your own.
What the model leaves out on purpose
To stay readable, this tool ignores tax entirely, and that is a big simplification you must hold in your head. It does not model negative gearing, where a property running at a cash-flow loss reduces your taxable income, which softens the holding cost shown here. It does not apply the 50 percent CGT discount when either asset is eventually sold, nor the stamp duty and conveyancing you pay up front on property, which in most states on a $700,000 purchase runs well into five figures and is effectively dead money on day one. Franking credits on Australian shares are also left out, and they can add roughly one to one and a half percent to the effective return of a fully franked portfolio.
So how should you read the output? Treat it as a clean comparison of the raw growth mechanics, leverage versus diversification, before the tax system gets involved. The practical judgement most advisers reach is that property suits people with stable high incomes who can service a large loan through rough patches and who value being forced to hold for a decade. Shares suit people who want liquidity, low entry costs, and the freedom to invest smaller amounts regularly. A common and sensible mistake to avoid is borrowing to the absolute maximum on property purely because the leverage maths looks good here; the model never feels the stress of a rate rise or a vacant tenancy, but your bank account will.
Does negative gearing make property the obvious winner?
Not on its own. Negative gearing only returns tax at your marginal rate on a real cash loss, so you are still out of pocket each year, just less than the gross loss suggests. It works best for high earners and relies on capital growth eventually outweighing those accumulated losses. This tool does not include it, so a genuinely negatively geared property would have a slightly smaller drag than the holding cost shown.
Why not just buy a home to live in and shares on the side?
Many Australians do exactly that, and it is a strong default. Your own home is CGT-free on sale, which neither an investment property nor a share portfolio enjoys, and shares give you the liquid, diversified growth this tool credits to the shares column. This calculator compares pure investment choices, so it does not value the CGT-free main residence, which in reality is one of the most powerful concessions in the country.