Dear Friend,Hello and welcome. Thank you for providing an opportunity to assist you.Yes, I can throw some light on this, however, this is little open ended and both the options have their own pros and cons uniquely different.however, you have under priced this question and it involves good amount of time. I am making an offer. If you think fit you may accept and we can move ahead.Warm Regards,
Hello again. In my opinion, these are two investment options that cannot be out-rightly compared. Let me explain. While evaluating such a diverse option, the study of the risk profile of the investor is a must. The reason is, irrespective of the return, the investor will not prefer the capital market option if he has a low risk appetite.
COMING to your question, while talking about the property, you have just counted the yield. You have NOT counted the appreciation (appreciation of the capital value because of anticipated increase in the price of the property). If you combine these two, you will arrive at a decent 40-45% appreciation.
SECOND POINT -- The above option has "certainty" of income. The option of stock market will give you much higher return but it will involve "uncertainty" to a great extent. Also, on need to discount volatility in the returns and they are never uniform.
So far as separating the interest from the 90% return, it is never done this way. While investing in a stock Markets, usually the dividends are reinvested. In the 7 year period, if you sell the stocks at higher price, you will reinvest the profits as well. So, the capital invested will increase by such actions over period of time.
So, the correct method would be to count and take into consideration the start capital of 200,000 and take annualized appreciation into consideration. Interest does not come into picture in any way.
So, a risk-averse or a moderate risk taker will opt for the Property investment option and person with higher risk appetite will opt for stocks.
I am sure this would help.
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Dear Friend,Hello and welcome again. It is pleasure assisting you.No.. it does not mean that 90% of the total return estimate from the investor has likely assumed that there would be no dividend payments. In fact, from what I have understood from your question is that you have expected the 200,000 to grow by 90% over 7.5 years therefore expecting 12% of Annualized returns. I believe this is little on the higher side UNLESS you have leveraged positions, which the investor does NOT typically have. Correct me if I am wrong.
Secondly, I believe, you cannot expect a 3% dividend payout, therefore DO NOT re-invest it and still expect a annualized return / growth of 12% per annum.
Important, the way you cannot expect / forecast the property to grow 45% in the similar way, you cannot expect such exact growth in the stocks as well. While calculating property returns, I counted the annual yield that you gave me, around 5% per annum plus average compounded 4-5% appreciation in value over 8 years time. So, this was just a rough estimate, obviously not the precise one.So, if one approximately evaluates these two options, then even the slightly risk averse or a moderate risk taker will opt for property option as the returns are at least certain and relatively less volatile.Stocks will certainly give you better returns on relative terms but the returns will be volatile and will accompany higher risk element.Therefore, I am of the opinion that taking the % of returns as secondary, this decision should be primarily be governed with your risk appetite.
Dear Friend,Hello again. YES. this very much makes sense. Your calculations / presumptions are more or less correct.
Though your calculation remains very much in line, the only thing that you need to factor in -- is that both of your major components of profits, i.e. dividend payout and the appreciation are "uncertain" variables. This makes the property investment favorable. More importantly, though the stock returns that you have calculated are much superior and very much achievable, you must not forget that for the entire duration / tenure of 75 years, this needs to be "actively managed" and that too successfully. This is not so with your property.
So, slightest of any financial mismanagement of stocks, the returns can decline.So, as again, as I said in my original reply, let your risk appetite and your ability to actively manage your investments in the financial markets govern the decision making.
Dear Friend,Hello and welcome again.Yes, you are correct. What you need to decide that for the additional 4000 worth of returns, is the risk really worth ? I would say it is really worth it but again, sticking to my original opinion, I would let your risk appetite decide for it. The core question here is the "class" of capital you are investing. For example, if you are putting in your retirement money, then I would ask you to go for property option without any second thoughts. However, if you have other means of cash and income over and above this 200,000, they you may slightly raise your risk profile and go for stocks.So, your risk appetite, your current cash flows and other savings / money that you have over and above this will have a significant bearing on what you decide.
I am sure this would help.