Property vs Shares: Returns & Performance Over Time | Part 2

Thirty Years of Share Returns

Damien presents approximate 30-year total return figures sourced from Vanguard data (with no commercial affiliation): Australian shares around 9.4% per annum, international shares excluding the US around 8.8%, US shares around 11.8% (reflecting stronger growth over that period), and Australian property-focused trusts (REITs, covering retail, office, industrial, and diversified commercial property) sitting toward the lower end, with cash the lowest performer of all categories shown.

Why the Time Period You Choose Matters

Both stress that whichever asset class had the most recent boom will always look best over any single, arbitrarily chosen period, given the nature of exponential growth. Jeremy explains the more rigorous approach (resampling, testing multiple overlapping historical windows rather than just one) would give a more reliable long-term average, though he acknowledges this analysis sticks to a single 30-year window given the practical difficulty of sourcing reliable historical yield data further back.

The Baseline Comparison

Using this 30-year data, Damien models a "bog standard" comparison: property showing a total return around 7.4% (capital growth plus net rental yield, for houses specifically, not units), against Australian shares around 5.4% capital appreciation with a yield bringing the total closer to 9–10% (varying slightly by source, Morningstar around 9.2%, Vanguard-sourced figures closer to 9.8%).

Leverage: Property vs. Shares

Jeremy explains property loans typically allow higher leverage (80–90% LVR) at comparatively lower interest rates than margin loans against shares (which he estimates commonly range 30–70% LVR, though he notes some diversified index funds can go as high as 80%, a detail he found surprising given how often high leverage is cited as a uniquely property-specific advantage). Damien walks through the Vanguard website's own margin lending ratios for individual holdings as an example: highly diversified funds like VAS (top 300 Australian companies) and VGS (1,500+ global companies) can be lent against at up to 80% LVR, while a more speculative individual stock might only support around 40%, reflecting the lender's own risk assessment, similar in principle to how certain postcodes can be effectively "blacklisted" or restricted by property lenders.

Both note margin loans carry the added risk of a margin call, if a share price falls enough to breach the lender's maximum LVR, shares can be automatically sold to bring the loan back into line, often at the worst possible time, a risk that has no direct, routinely-triggered equivalent in property lending.

Worked Example: $100,000 Deposit, Property

Using $100,000 as a deposit at 80% LVR (financing a $384,000 property, using the 5.4% growth and roughly 2% net yield figures from the 30-year data, with a 6.5% long-term interest rate assumption), Damien calculates a return on investment of around 12% on the original $100,000, driven by roughly $20,000–$21,000 in growth against an estimated $8,000 annual cash flow shortfall.

Worked Example: $100,000 in Shares, Unleveraged

Buying $100,000 of shares outright (no lending, around a 4% yield, tax paid at a 30% rate for this example, franking credits set aside since 30% roughly matches the company tax rate anyway) produces an estimated return of around 8.45%, but critically, this comes with a positive cash flow of around $2,600 a year, a stark contrast to the property example's cash flow shortfall over the same period.

Worked Example: $100,000 in Shares, Leveraged

Applying leverage more conservatively than the earlier property example (60% LVR, against an estimated 8.5% margin loan interest rate), the same $100,000 now controls around $250,000 of share exposure. This produces an estimated ROI of around 12.45%, essentially matching the property example (12.18%), though now with a modest cash flow drag rather than a cash flow benefit, since the leverage introduces loan interest costs.

US Shares, Leveraged

Applying the same leveraged approach using the stronger 30-year US share growth figures (around 11%, reflecting a US market more weighted toward reinvested growth than dividend distribution, with a lower yield around 1.2–1.3% versus a longer-term historical average closer to 1.8%), the estimated ROI rises to around 17%. Both caution this reflects an unusually strong historical window for US shares specifically, and that a more rigorous resampling approach across multiple overlapping periods would likely bring this figure down closer to the other comparisons.

Franking Credits in Practice

Damien walks through a worked example of how franking credits work: a company dividend already taxed at the 30% corporate rate is "grossed up" on an individual's tax return, with a credit applied for tax the company has already paid. For an investor in a low or zero personal tax bracket, this can mean receiving a meaningfully larger net benefit (his example shows a net amount around $10,000 versus roughly $5,300 for someone in a higher tax bracket receiving the same gross dividend), making franking credits particularly valuable for retirees or lower-income earners, though of limited additional benefit for someone already in a tax bracket close to the 30% company rate, which is why the earlier property/share comparisons didn't separately factor them in.

Superannuation as a Comparison Point

Jeremy notes superannuation (introduced around 1992) has returned roughly 8% per annum since inception (combining growth and yield), a figure both consider comparatively modest next to the leveraged property and share scenarios modelled earlier, while cautioning that most people aren't closely aware of the fees being deducted from their own super balance and would benefit from checking this directly.

Debt Repayment Strategy and Timing Around Retirement

Damien explains a common approach among accumulating investors: rather than aggressively paying down debt during the accumulation phase, many hold interest-only loans and build savings in an offset account instead, since realising a large capital gain to pay off debt early (for instance, by selling a property) can trigger a significant tax bill in that same year. A more tax-efficient approach, particularly for someone retiring before the superannuation preservation age (currently 60), can be to draw down other assets or reduce working hours in the interim, then use superannuation access at 60 (potentially under a transition-to-retirement arrangement) to progressively pay down remaining debt with concessionally taxed funds, rather than realising a large taxable capital gain in one go. He also notes that superannuation itself still counts as an asset lenders will consider when assessing serviceability closer to retirement age.

Closing Thoughts: Why Property Still Wins for Jeremy

Both acknowledge being somewhat surprised at how closely leveraged property and leveraged shares compared once modelled side by side at the benchmark level. However, Jeremy's key distinction: a leveraged share portfolio effectively locks an investor into close-to-average market returns, given the higher-LVR lending options are largely restricted to already-diversified, market-tracking funds. Property, by contrast, offers a much easier path to outperforming its own benchmark, since property's dominant "trader" is the owner-occupier, someone making a lifestyle decision (family size, relocation, downsizing) rather than a purely financial one, unlike the share market, where every participant (professional fund managers included) is making a financial play. Jeremy argues this makes it comparatively simple to beat the property benchmark just by following a few basic, widely available principles (buying an established house rather than a new build or unit, and avoiding vacant land), something he doesn't see an equally simple equivalent for in the share market.

Both also revisit their recurring frustration with the "just hold long term" excuse given when a specific property purchase underperforms, arguing that if data was available at the time pointing to stronger alternative markets, an investor placed into a weaker-performing market has a legitimate grievance, rather than one that should be dismissed with a vague appeal to the long term.

They close by previewing Part 3, which will cover what each of them would personally do today, and invite listeners to like, comment, and subscribe ahead of that final instalment.