Property is a cornerstone of society. Don’t underestimate how powerful that is.
Ok, if you remember from last week, I was explaining why I’m such a property tragic, and why I think it’s the best road to wealth.
I said it all came down to control and whether the world has your back or not.
If you remember, I laid those two axes out on a chart that looked like this:
I explained the control side last week. Today, let’s look at that cryptic metric – “the world has your back”.
What do I mean by that?
Well, this is about how much support your asset class can expect to receive from the world at large.
For example, when you’re running your own business, by and large, the world couldn’t give a flying fig whether you fly and soar, or crash and burn. It couldn’t give a rats.
No help for you.
But think about stocks, in contrast.
When you are investing in the stock market, what are you investing in?
Well, if you bought a broad index like the ASX200, you are effectively investing in the Australian economy. These companies are the Australian economy.
And do people care what happens to the Australian economy?
Politicians use economic growth as a proxy for their own performance. There are entire organs of government devoted to keeping the economy on track (think RBA). Every mum and dad in Australia wants the economy to go well.
There is a broad array of large and powerful forces that want the economy to keep on keeping on.
Don’t underestimate the power of that.
And so when I invest in the share market, I feel like the world has my back. There are large and powerful forces that would prefer to see my investments do well.
They won’t always succeed over every time-frame. There’s always going to be glitches and crashes. But over the long run, there is an intense amount of human ingenuity and endeavour dedicated to making sure that the economy does well…
… and that publicly listed companies do well.
… and that shareholders do well.
I like that.
Where does property sit?
To my mind, property sits between shares and running your own business, but definitely on the positive end of the spectrum.
There is a broad array of large and powerful forces that want the property market to do well too.
The property market is central to the economy and central to our day-to-day lives. Everyone lives in a house. Most Australians have most of their wealth tied up in their house.
Everyone wants the property market to do well. (I’m not talking about continually posting massive gains, but I am definitely talking about no one wanting to see a crash or any sort of horror scenario.)
Some people might say they do – they might say they’re praying for the property market to crash – but they don’t mean it. If they really knew what happened in a property crash that’d be more careful with their prayers.
But in this regard, individuals matter much less than the government. They also want to see property do well. A lot of money and policy has been thrown at the property market over the years. A lot.
To me, I get enormous peace of mind knowing that an entire nation cares about what happens to my investments (not directly, but in general) and that time and time again, they’re willing to put their money where their mouths are.
Property a Clear Winner
Put these two together, and property is the clear winner. Not only does it give you a high degree of control, it also enjoys a high level of social support. That’s what I’m trying to show on this chart.
These things are important.
Leverage – The Hidden Axis
Actually, there’s probably a third axis here – leverage. This gets a lot of coverage, so I didn’t want to give it a lot of detail, but it’s definitely important.
One of the great things about property is that it gives you a huge capacity to leverage small sums into large wealth gains.
You don’t see it so much these days, but there was a time there where it was common to buy an investment property with a 5% deposit.
You can borrow to invest in the stock market too, sure, but you’d never get away with that kind of gearing.
And running your own business? Forget it. Finance for business is cut-throat!
So yeah, leverage is another huge plus for property. Let’s not forget that one.
Anyway, control, social support and leverage.
These are the things that bring me back to property, time and time again.
Nothing really comes close.