How to decide between investing in property, stocks or crypto

The type of asset class you should invest in comes down to your overall goals and strategy.

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The budget reforms to CGT don’t just affect property. Any type of asset will be subject to the removal of the 50 per cent CGT discount and the introduction of an indexation-based discount plus a minimum 30 per cent tax on gains from 1 July 2027.

So, with negative gearing also restricted, what’s the best investment right now: stocks, crypto or property?

What’s the best investment? Don’t ask a chatbot – ask the experts.

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CRYSTAL BALL GAZING

The trouble with that question, says author of The One-Page Investing Plan, Scott Phillips, is that nobody knows the future.

“Anyone who tells you exactly specifically which one is best and why will be using assumptions and those assumptions may be right or wrong,” Phillips says.

With that in mind, each asset class has its own pros and cons to consider moving forward.

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When building wealth, it’s important to look further than just the tax advantages.

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STRATEGY VS TAX ADVANTAGE

Most importantly, the asset needs to be in line with an investor’s overall goals and strategy rather than be based on the strength of its tax advantages, says host of the Money Money Money podcast and co-author of The Quick-Start Guide to Your First Property, Glen James.

“If you were setting out to invest in shares, property, Bitcoin before the federal budget, well, that shouldn’t necessarily change your investment strategy,” James says.

He gives the example of someone investing in ETFs because they want the ability to grow their portfolio over time and the flexibility to sell off and draw down some of their investment if needed.

Are you looking for the ability to liquidate? Shares might be an option to consider.

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“The federal budget didn’t announce overnight that a residential investment property is a bad investment,” he says. “They didn’t announce overnight that ETFs or shares are a bad investment.

“We should never have tax as the primary driver to our investing decisions.”

While tax shouldn’t be the deciding factor, it is helpful to know the pros and cons of each investment class and how they stack up post-budget changes.

Scott Phillips, author of The One-Page Investing Plan. Picture: supplied

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PROPERTY PERKS

“The capital gains tax changes and negative gearing changes make property less attractive than it used to be,” Phillips says, adding that negative gearing restrictions in particular put property at a disadvantage to other asset classes in the case of borrowing to invest.

“You still can negatively gear shares if the interest cost is larger than the income you’re deriving and that doesn’t apply any more to property,” he says.

It’s worth noting, however, that most investors don’t borrow against shares, he adds.

But despite the tax changes, property still has plenty of positives, including being easy to understand and being relatively less volatile (when compared with other types of investments, such as shares and crypto).

Property is an asset that serves a fundamental need in society. Picture: iStock.

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On the other hand, it can be harder to diversify with property unless you are able to build a large property portfolio, he says. Investing in property also requires taking on huge amounts of debt, which can be cumbersome if the property becomes vacant or values slide. The growth of property can also be curtailed by general affordability, he adds.

James says people should consider the pros and cons of property investing depending on their financial journey. For instance, those nearing retirement could put their age-pension eligibility at risk.

He also warns against buying brand new properties just for the tax benefits.

“The fundamentals need to stack up with the investment. We pay the tax at the exit as the cards lie,” James says.

Negative gearing is also still possible against commercial property, he says. Commercial property often tends to produce higher yields but can be risky and tends to suit seasoned investors with established capital.

Glen James, host of Money Money Money podcast and co-author of The Quick-Start Guide to Your First Property. Picture: supplied

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SHARES

While individual shares are generally more volatile, it’s easier to diversify within this asset class than property, says Phillips, who is open about his preference for shares. Investing in ETFs enables someone to spread their dollars across a broader spectrum of companies, helping to minimise risk.

While investors can still negatively gear income losses incurred against shares, borrowing to invest in the stock market is considerably risky. It’s also not necessary.

“You don’t need to commit to a seven figure or high six figure purchase – you can invest for as little as $50,” Phillips says.

Shares offer plenty of benefits.

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Franking credits offer another tax advantage that’s not often talked about, he says.

While net rental profit received, bank interest and other forms of income get taxed at your marginal rate, income from shares in the form of dividends are treated a bit differently if the company you invest in has franking credits.

“With shares, you actually get a credit for the tax the company has paid on that profit already,” he says. “You effectively get your dollar of dividends, but you also get a tax credit you can offset against your tax.”

Will crypto continue to grow over time, or will it all eventually come crashing down?

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CRYPTO CONSIDERED

James says he wouldn’t invest more than five per cent of his net worth on the highly speculative asset class of crypto.

Phillips says “cryptocurrency” as a category is too broad and so speculative that it’s “more akin to gambling than investing.”

Bitcoin has had ongoing adoption for more than a dozen years and has skyrocketed in that time, however, there is no way to value it in a fundamental sense, he adds.

“The cons are simply that you can’t know whether this is a fashion or a fad,” Phillips says. “Is it a long-term trend or is it something we look back on and go, ‘Hey, remember when we thought Bitcoin was going to be a thing?’.”

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