Yovich & Co. Weekly Update - 24 September 2012

Sep 24, 2012 | Commentary

This Week's Themes

  • The local market continued the rally to reach its highest point since the Global Financial Crisis.
  • The rally was fuelled by surprisingly strong data showing that GDP growth for the second quarter was 0.6%, twice the expected level.
  • The major offshore indices took a breather from the stimulus based rally with poor manufacturing data in Europe and the U.S. discouraging investors.
  • U.S. housing data hit a 2 year high with hopes that this will lead to a lift in consumer confidence and spending.
  • The NZ Dollar has pulled back slightly after recent strong performance against the US Dollar as a result of the U.S Fed turning the printing machines on. Some commentators are still expecting that it will go higher.

Investment News

Shares vs. Property: There have been a couple of articles in the NZ Herald over the past few weeks trying to tackle the ongoing debate on which is the best investment, Shares or Property?

The original article is here:

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10833372&ref=rss

Mary Holm also entered into the debate:

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10835652&ref=rss

In the original article, they compared returns on a group of different asset classes over the past 40 years with shares outperforming by an impressive and clear margin. There was one glaring caveat in the research and that was that the property investment did not include rent while shares included dividends. Although this meant that they were not comparing “apples with apples” I can understand the reasoning for it. First of all, it is near impossible to find the average rental return for property and secondly, rental returns are eaten away by maintenance costs, rates and times when the property is vacant.

From a purely textbook perspective, they perform differently depending on the business cycle and many other factors and for this reason alone you should diversify across the four asset classes (Cash, Bonds, Property and Shares). As an investor there are positives and negatives for shares and property and here is a brief summary:

In conclusion, every investor should have exposure to both shares and property. The amount you invest will depend on your personal preferences and situation. For investors who do not have time to manage an investment property, they can gain exposure to the property market by purchasing shares in a listed property company and there are several listed on the NZX. While on the other hand, if you have the time and skills to and manage and add value to a property, then investing a larger portion of your wealth into property might be appropriate for you.

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Jarrod Goodall



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