#275 - Australian Property VS Shares

Had a doubt. If you have held property, you have built some form of wealth, even if we factor in inflation. Will property make you richer or will shares make you richer? It really comes down to how you're measuring richness. The leverage is where people love the property. However, with leverage, it only works when the asset goes up. So why didn't I buy property? What was it that about it that I didn't agree with in terms of getting rich, so to speak? is the fact that I had...

I'm Lloyd James Ross, seven-figure investor and entrepreneur, and I've helped thousands of business owners and professionals turn financial stress into success. If you're stuck in old money habits, overwhelmed by investing, or unsure where to start, this is for you. I'll give you the mindset and strategies to take control, grow your wealth, and achieve financial freedom. It's time to make your money work for you. Will Australian property or shares make you rich? Very

controversial topic here. I dare say we're going to have some fights in the comments, maybe some love too, but usually fights. So if you've got an opinion on this, I'd love you to share it in the comments below. And if you're enjoying this video and any of our other videos, hit the sub button, share this with a friend, because we're going to talk about all the things you're thinking about. Well, that's what my intention is with this episode. So will Australian

property or shares make you rich? So let's define what we mean by rich. In my opinion or my experience, rich is someone who's got money and time. That's why it's got my little hat there, time rich. I've always tried to become time rich rather than just rich. And because if you have all the money and no time, are you truly wealthy? So we have to understand that's the definition we're talking about when we talk about

becoming rich. Now, without question, if you have been living under a rock, you would not know this, but if you haven't been, which most of you wouldn't have been, which is great, you would know that Australian property has just been on an absolute tear. It's been growing very, very strongly, arguably for probably 50 years. And for all the reasons, I've got other videos on this that I've done, go check them out as to why that's happened and why I believe it will not

continue to happen as it has. Without question, especially in the last few years since COVID, we've seen property values skyrocket by 65%. So, without a doubt, if you have held property, you have built some form of wealth, even if we factor in inflation, right? Now, I understand that the Australian dollar has lost value through inflation over that time as well. So, the real returns of property aren't, you know, the 7.5% to 8% that people

think that they are. However, By all accounts, it's been a hedge against inflation, and it's also been, there's been nominal returns that have made people wealthy. Here's why. Leverage. That's really why. It's where you use the bank's money, you put in a cash equity deposit into the property, and you're making, say, five to 10 times you know, five to 10 X returns on your cash deposit. So of course it's made people on paper richer, monetarily richer. So your net worth would have gone

up, but has that made you richer in time? Or have you been someone who's just been working for the last 20, 30, 40 years just to pay the mortgage, just to build your portfolio, and are you still slogging it away, commuting every single day in two to three hour traffic just to build this portfolio? Because to me, that ain't rich. But without a doubt, It's difficult to say that people haven't built nominal net worth returns in property in the last 10, 15, 20, 30 years

in Australia. And by all accounts in most places in the world, but particularly in Australia, because we have currently policies in place from government and the tax legislation and seemingly the cultural adoption of the fact that property is the only way to build wealth. But the reality is there's other ways to build wealth. And it's how I've built wealth because it turns out I've never owned property. certainly not directly, perhaps

for a little bit of time, but not really at all. Even though I'm a property lawyer, I've cut my teeth in property development, I worked for the largest developer in the world for many years, and then I also ran a property investment and planning and marketing business for seven years with my dad. And so my whole background, I'm also a fully licensed agent, I've got a full real estate license, still effective, I had it for, since I was 20. So it's

like 22 years I've been a fully licensed. I've been in and around the property industry a long time. So why didn't I buy property? What was it that about it that I didn't agree with in terms of building wealth or getting rich, so to speak, is the fact that I had to get debt and a lot of it. But also, the thing that you don't have with properties is not liquid. And so for me to be rich or wealthy is someone who can have what's called

optionality, someone who can have agility, someone where you have the ability to grab cash, create opportunity and not bolt yourself to a death pledge for 30 years. So for me, wealth and being rich is someone who has choice and options. So for me, I didn't realize, I didn't think that owning a property was gonna give me any wealth, sorry, give me any options or give me any choice. And in that sense, I thought this is really not the game I want to play. So what

alternatives were there? I mean, I didn't really want to put my money into term deposits. I didn't really want to speculate on gold or precious metals. And I certainly, if you follow me for long enough, you know that I don't really want to touch cryptocurrencies. It's funny, actually, someone asked me to come on the show, and they said, Lloyd, I can see you're all about cryptocurrencies. I want to come and talk about it. I'm like, well, you obviously haven't watched the show. So

I didn't want to speculate. So I needed to understand what other assets do I want to invest in. And then I came across, actually, what happened was I was in an airport one day, and I heard about a guy called Warren Buffett. This is many years ago. I was probably only 20. at the time and it's just 22 years ago. And don't forget, I live in like the mecca of property. I live on the Gold Coast in Australia, which is like everyone,

you either, there's this funny joke here. If you're successful in the Gold Coast, you're either in drugs or real estate. Anyway, so obviously a lot of people have created a career in real estate in the city. So you've got to understand that's where I live. So I have all these external forces. family forces, peer forces, peer pressure, news, career progression, et cetera. All the little things I was doing. I was in the lion's den when it comes to

property. But I heard that there was a guy called Warren Buffett who did things differently. And I needed to understand shares. So I'm like, well, what am I going to do? So I grabbed a book called The Snowball. It was the very first book on shares that I ever read. And it's still one of my favorite, if not my favorite biography on business or biography on someone ever. And it's a biography of Warren Buffett. And what I understood from that book was there was a penny

drop moment. It just struck me when I read the book. I was like, ah, I understand. So when I'm buying shares, I'm buying shares in a business, but we can actually find businesses that are high quality selling for a lot less than they're worth. So by all accounts, I could find dollar bills and buy them for 50 cents. And that was a more fun game for me to build wealth or get rich because I had a science I could follow. I could see, I

could understand that, see improperty. it's not necessarily always an auction driven market, right? So you don't have full price disclosure, you don't have, it's very highly negotiated deal making, okay? So what that means is, is you don't get, and because the market's not liquid, you don't get a lot of really mispriced real estate. Generally speaking, it's very, it oscillates very

close to its fair value. Whereas in the stock market, because it's liquid, because it's an auction driven market purely, and because a lot of people are uneducated in the space, you get some really ridiculously good deals. And so you can buy pieces of business assets that are truly like marked way down. And so when I discovered that, I thought this is a better game for me to play. And I could start playing

with small money. I didn't have to get any debt. And by all accounts, the richest people in the world held stock in public companies. And to this day, like Larry Ellison just became the richest man in the world, like last week. He is the major owner of Oracle, and he surpassed Elon Musk to become the wealthiest. So I'm like, who else is the wealthiest? And I looked at

the list, there's like 12 or 13 top wealthiest in the world. And if you go down the list, you can see that there's Larry Ellison, you can see there's Elon Musk, you can see Jeff Bezos, you can see Larry Page, Sergey Brin, they created Google. And you can see Bernard Arnault, he is the owner of LVMH, right, Louis Vuitton. You see Warren Buffett in there, you can see Steve Ballmer. Steve Ballmer wasn't even the owner of Microsoft, he was the CEO

for a while. But And Mark Zuckerberg is there who owns Meta, right? Started Meta. So if you look at this list, all of them own a large percentage of their public company, meaning they are the largest shareholders of those businesses. And they all pretty much own single stock portfolios. So isn't that interesting to see that the wealthiest people in the world, the richest in the world, actually didn't get there through real estate. They got there through

owning shares in a public company. Yes, by all accounts, I know. I

know. And you're going to put in the comments, yeah, Lloyd, but they have steerage and ownership and they can, I get it. irrespective. Steve Ballmer didn't. He didn't create Microsoft. He just held a single stock portfolio, I imagine, for a long period of time. He is now actually wealthier than Bill Gates, who started Microsoft for

various reasons, because Bill's given away a lot of his wealth to charity. So if you look at that, then why would I play a game where the richest people in the world play and then I was going to go and play this real estate game? It didn't fit with me. You can definitely build wealth and get rich with stocks. Certainly

with real estate, the key to that is the leverage, right? So if we look at how to get rich in real estate, it's a steady asset, income to service alone, banks are prepared to lend on it, you can use other people's money, highly leveraged, but you want to be buying near a city, near infrastructure, in a mature market, and you want to hold it for long periods

of time. Yeah, you don't make as much money if you're chopping and changing and transacting real estate all the time because of stamp duty, transaction costs, etc, etc. So By all accounts, that's how you build wealth and property. But will that continue in the future? I don't think so. And if you want to understand my

positioning on that, go and check out my previous video on is Australian property overpriced, because you'll see why I explain four metrics as to why I think it is. So go check out that video. The reason why I prefer stocks to get rich is because I can buy dollar bills for 50 cents. Let me give you some examples. Just quickly, if you're ready to take control of your finances

but feel stuck on where to start, I have a solution. My book, Money Buys Happiness, simplifies investing and wealth building with practical steps to help you achieve financial peace. Get your copy via the link in the show notes and let's get your money working for you. Now back to the episode. The smaller banks in America Started to go broke They they held their bond portfolios were positioned such that when rates started to go up in America, it started to make them insolvent. And

so a couple of them went insolvent. In fact, there was some of the biggest insolvencies three years ago in American banking. And it was in the news. However, what happened was all the bigger banks that are too big to fail, the ones that were bailed out during the 2008 GFC, they did it, they weren't insolvent. But what happened is the entire banking industry got hammered. So because these smaller banks were

being insolvent, it dropped the share price of all the bigger banks. And so one of the banks that I held, I bought during the GFC Bank of America, it fell from about $47 to about $24. And so I loaded in half a million dollars into that position, because the understanding is that One, it wasn't insolvent. Two, America was not going to let the Bank of America go broke because they didn't before and they won't again. Warren Buffett was a major shareholder. Other

super investors were buying shares at the same time. Lee Liu, who was Charlie Munger's protege, who Charlie Munger, who's Warren Buffett's business partner, said, Lee Liu is the only one I've ever given Munger money to to manage. He gave him $80 million and he turned it into $800 million. So Lee Liu bought like, in fact, it was about, I think it was about 20, 30% of his portfolio. It might have been 20% of his portfolio put into Bank of America. So

understanding these signals, I shifted in half a million. And of course, over the course of about 12 months, it went back up to around about $45 a share. And so it was an easy $250, $300,000. It was the fastest $300,000 I think I've made for a while. It was just quick. in terms of an undervalued security. So you can see that there's those opportunities out there. I mean, more recently as well, like even last night, I was looking at our Baba portfolio and we've been DCA

into that at over seven figures in that one stock. And I think by all accounts, that should You never really know what's going to happen with the world, but it seems like it's taking China's share from NVIDIA now. And I believe personally, I mean, it's not financial advice, please don't go and buy it. I'm just trying to explain some examples here. There's really no reason why we shouldn't see that potentially 5X. So I should be able to make about 4 to 5 million out of

that one position. And again, you may disagree in the comments. In fact, you're going to disagree in the comments. Go do it. You notice on all my videos, I reply to every single comment. You notice that? And that's actually me. It's not a VA. I actually go and read all the comments. My friends are like, you're a psycho. You go read all these comments. Some of them are brutal. I don't care. It doesn't hurt my feelings. You're allowed to have your opinion. I'll come and fight

you in the comments. I don't care. Or I'll love you in the comments. Whatever. But let's engage in the comments. If you don't agree with me, put it. If you agree with me, great. And those who agree, thank you. It's nice to get some love. But I was in bed like last night. I was replying to all the comments. So this is some examples of how to build wealth in shares. I have mentioned before too that if you're not into finding individual securities and

most people aren't equipped to do that. You have to educate yourself and I'm interested in it, right? I love to read balance sheets and income statements and cash flow statements to relax. So if you're not that way inclined, yeah. Buying individual stocks is going to be not the best option. But you can certainly dollar cost average, for example, into some sort of index fund. And if you look at, and I've shared this example before, I'm sure, there was a guy,

Gary Bruce, I think his name was, he bought the LA Lakers. This is going to prove the power of investing in an exchange traded fund like the S&P 500 over a long period of

time to get rich compared to property. This is why I'm explaining this concept to you. So Gary Boos bought the LA Lakers in 1975, I believe it was, for $67 million. A lot of money. He recently sold it, what's that, 50 years later, he sold it for $10 billion. And I often ask people, would you love to have those returns on your money? They're like, yeah, that'd be amazing. I mean, he put $67 million, he got $10 billion. Oh, I would love to do that. I'm like, well, that's fantastic that

you'd love to because you can. They say, how? I say, well, If Gary had to put $67 million into the S&P 500 index fund in 1975 and held it, he would have close to $12 billion, so without any effort. So that's the power of compounding in shares. That's the American economic machine in play. So it's very difficult to suggest that always historical returns, either in property or in shares, are going to repeat in the future, right? history is a good, it's the only indicator we have of

what may happen in the future. So if I had to bet on what would make me the richest, I mean, I feel like I'm playing the games that will make me the richest, not just in money, but in money and time. Because I don't have to manage tenants, I don't have to, I mean, I just, I know you get a property manager, please don't put that in the comments. But I just feel it's simpler to scale with ownership of shares in companies and even an ETF

when you're making business profits. And also as an entrepreneur, it's a lot more It's a lot, it feels better to be able to access funds quickly, particularly if you're in opportunities. Like if I want to start a business and I need to find 10, 20, 30, 50, 100,000, like we bought a laundromat like, I don't know, a year ago or something. And I had to secure that with about 200, maybe

it was 140,000 cash to secure that for part of the lending to borrow. So if I didn't have access to that, which I could have hit a button, sell some shares, boom, right? Whereas if you got a property, certainly you can use it as security with equity, which is super popular in Australia. However, if it's not for something like a business acquisition and you need it for something else like a health emergency or whatever, it's just harder

to get it quickly. You can get it with an equity loan, but you're at the mercy of the banks then. And I don't want to be at the mercy of anyone, particularly a bank. And so I just prefer to have liquidity. So if I think about what opportunities there are in the share market for owning great companies at great prices, holding for long periods of times and compounding at a very high rate. In fact, if you look at the compound rate of shares versus property, prima facie absolutely

can't be disputed. Shares outperform property, period. They just do. But the leverage is where people love in property. However, with leverage, It only works when the asset goes up. So if we went through, say, for example, some sort of correction in the property market, all of a sudden you wouldn't like leverage, let me tell you. You would dislike it very much because your losses are amplified with leverage too. Now, can you find

leverage in the share market? Yes, you can. You can find ETFs that are slightly leveraged or automated for you. But again, you don't have to do that to get the returns. So to summarize this, to really nail this, will property make you richer or will shares make you richer? It really comes down to how you're measuring richness. Because for me, I mean, I'm sitting here,

what is it? I don't know what day of the week it is. This is a Thursday today. I'm cruising here, came in the car, hang out with the guys here. And I woke up when I finished sleeping today. What a novel concept, huh? Wake up when you finish sleeping. And I'm time rich. I'm doing what I want to do when I want to do it with the people I want to do it with. So I'm not the richest person by money and there's so many people that

own property that are richer than me, like tons. Like some grandmas that just sat on their house in Vaucluse, they're like 20 times richer than me, right? But they still like aren't rich in their mind because they're stuck to a job that I don't like. They don't travel. Like we just went heli-skiing last week in Queenstown. Go check out my Instagram profile. You might find a reel in there. And it was just because my friend asked me, he actually did a pitch. He

did a PowerPoint presentation and pitched us. So we said, yes. Right. So that to me is like someone who's rich can do both make money, have time. And I just feel like shares are just so, give me so much more optionality. than property. And that's why I feel personally that shares are a way to make you richer too. So that's my position on it. What do you think? I'd love to know. How did you get rich? Put in the comments. Was it property or was it shares? And what are your feelings about this?

Pop in the chat, pop in the comments and you'll know that I'm coming. I'm going to reply then personally. So Thanks for engaging. Hope you've enjoyed the episode. If you've enjoyed this and I've imparted any wisdom to you in this, then share this with a friend, hit the sub button, and I'll see you in the next episode. Thanks for listening to Money Grows

on Trees. If you enjoyed the episode, leave a five-star review on Apple Podcasts and Spotify and subscribe to us on YouTube so you never miss an episode. And if you're serious about building wealth, make sure to check out the links in the show notes and follow me on all social media platforms, at LloydJamesRoss for