Comparing the returns over the same period of time.
This head-to-head comparison between bricks and stocks is always discussed, often fueled by different perspectives.
We are going to put this out here first:
While it’s true that realtors have a vested interest in promoting property investments, it’s important to remember that not all professionals are biased.
Many of us genuinely care and do take utmost effort in assessing our clients’ investment profiles before making any recommendations to them.
Our goal with this post is not to declare either asset class as superior.
Instead, we aim to highlight how both can be effective components of a diversified investment portfolio, catering to various risk appetites and financial objectives.
Selected case study
This is a very recent case of a client who bought a 2-bedder during the development’s new launch phase back in 2021, and sold it at a profit after TOP in September 2024.
For ease of comparison, it makes more sense to select a case where a client bought the property for pure investment objectives.
We also chose to use an actual case instead of just using average figures from the overall property market.This paints a more accurate picture with actual realised profits.
After all, one buys a singular property instead of investing in the overall market.
Net profits from the property investment
What we use in our calculations:
Capital invested and expenses incurred that could have been invested in the S&P 500 at time of purchase:
- 25% Downpayment
- Buyer Stamp Duty
- Legal Fees
Expenses incurred by the time of sale:
- Interest Expense (over the holding period)
- Agent’s Selling Fee (2% + GST)
- Legal Fees
Net profits realised from this investment property: $141,743
What if the capital had been invested in the S&P 500?
To break it down, the capital the client could have invested came from these sources:
CPF OA – $129,830
Cash – $175,651
If all the cash was invested in the S&P 500 from February 2021 to September 2024, and assuming all dividends were reinvested, the client would have seen a profit of $92,431.
The risk-free interest earned on her CPF OA amount would have been $12,462.
Net profits exc. brokerage fees if the client had invested in the S&P 500 & left the funds in her CPF: $104,893
Some notable assumptions
We assume that the client is gung-ho enough to put the entire sum of $175,651 into the S&P 500 in February 2021. If the client had decided to Dollar-Cost Average (DCA) slowly into the S&P 500 over the last few years, the returns would have been much lower.
We are using only one positive example where a client had bought a property that saw decent capital appreciation over a short period. There are cases where the net profits can be lower or higher than what we see in this particular case.
As long as the money grows
As you can see, either way, as long the client made sure to invest the money she had, she would have improved her financial position.
The decision of where to put the money in would be then based on individual risk appetites and preferences.
Historically, both S&P 500 and our private property market had periods of ups, downs and stagnant phases.
There are people who are more well-versed in the stock market, and there are people who prefer putting their money in property which is a tangible asset that they can live in or rent out.
Our choice
Like we mentioned at the start, we believe in having a diversified portfolio.
If one can afford to invest in both stocks and property as early as they can, they should.
So which should come first? Again, it is up to you.
For ourselves, we find that the barriers to entry for property is inevitably higher because it typically requires a significant upfront capital outlay as compared to stocks, which we can still gradually accumulate after having sorted out our property investments.
But hey, that’s just us!
