A widely-reported release from a financial advice firm indicating shares offer better returns than property investments has been slated by BNZ chief economist Tony Alexander.
The data, released last week by Camelot Financial Group, showed investors with a portfolio of shares were more than twice better off than those who focused solely on property.
The data said investors experienced 11.2% growth in equities compared to a 9.2%growth in property returns from a $10,000 investment made between 1971 and the end of 2011.
Alexander said that was not quite right.
“You see the calculation for the return on shares was based on the NZSX50. This index covers only big companies and immediately excludes failures (they drop out of the index), while capturing the rising winners. The calculation for returns on housing covered every house in the country. The measures are not comparable.”
He said the share index measure included dividends but the property measure excluded rents.
“This is just unprofessional. And then there is the final nail in the coffin for this long-running comparison. When you and I invest in property we almost always gear up. We borrow money so that our $10,000 investment in 1971 is actually boosted to something like $50,000. But hardly anyone ever borrows (or is lent) money on shares, so there is no multiplier effect in play.”