When we think about saving for retirement, it’s easy to focus on the upfront cost of investments.
But there’s more to it than just the 'purchase price'.
The real cost of owning something goes way beyond what you pay to buy it.
It’s not just the enormous time, effort, and extra money that trips people up.
But also the opportunity cost of not having your capital working in the most efficient way.
Most of us forget to think about things like upkeep, stress, and the impact on our time.
And almost all of us do not compare capital market assumptions of differing asset classes in the future and map out on paper the expected opportunity cost of our decisions.
In this blog, I’ll talk about these hidden costs when it comes to two options: equities (ownership in great global companies) and residential property.
The goal is to help you see what 'ownership' really means, so you can decide where to put not only your money, but perhaps more importantly, your time and energy.
Hat tip to Chartered Financial Planner Tom Redmayne, who made some great points about this very topic in his recent blog, Bricks & Slaughter.
Owning shares in companies
Investing in shares of the great companies of the world through the stock market can seem complex at first, but once you’ve set things up, it’s pretty low maintenance.
The day-to-day running of the companies you’re invested in is handled by someone else.
If you’ve set up the right portfolio, your financial life managers do most of the heavy lifting.
Your main job?
Be patient and disciplined over time.
You don’t need to monitor it constantly.
Once a year, you can check your portfolio to see if it still suits your goals.
The hardest part of investing this way isn’t managing the investments—it’s managing your emotions.
The stock market rises and falls.
It’s not fun when it dips, but those falls are usually temporary.
The long-term gains are what matter.
The stock market also gives you flexibility.
You can sell small parts of your portfolio when you need cash and the money arrives back in your account within 3 days.
It’s straightforward and doesn’t take up much of your time.
It’s also hands-off—something that can’t be said about property.
Owning property
Property feels different.
It’s physical.
Aspirational.
These combined make it appealing.
Many people I meet are property mad and won't hear a word spoken against it.
Whilst I've enjoyed success with property and I am an advocate - I meet many others who've also lost big.
It does have major drawbacks.
Owning property comes with baggage—hidden costs that people often don't fully see.
Let's break down what you should consider:
1. The allure of 'passive' income
A lot of people think property is a passive investment.
But that isn't strictly true.
Ask anyone who owns property as an investment, and most will tell you there's nothing passive about it.
They're more like business owners.
You’ll spend time and money on maintenance, finding tenants, dealing with regulations, and covering costs during empty periods.
Even with a management company, you’ll still need to step in from time to time.
2. The 'hassle' factor
Property ownership is a high-hassle game.
You might have to deal with burst pipes, broken appliances, difficult tenants, and unexpected bills. Laws and taxes can change, adding to the workload.
Some people don’t mind the hassle.
Others do.
For me, the thought of spending my precious free time sorting out a leaking roof isn’t worth it.
3. The costs add up
Property is expensive to buy and keep.
When you buy in the UK, there’s stamp duty—a big one-off cost that can run into tens of thousands. Similar costs exist where I live in Dubai.
Rental income is taxed too, often at higher rates if you’re already a top-rate taxpayer.
When you sell, you’ll pay capital gains tax on any profit.
There are also ongoing costs like repairs, insurance, and management fees.
These all chip away at your returns.
4. Empty periods
When your property is empty, it’s still costing you money.
Mortgage payments and utility bills don’t stop just because there’s no rent coming in.
If your tenant moves out and you can’t find a replacement quickly, those costs can stack up.
And if you need cash to cover the bills?
Well, it’s tied up in the property.
5. Illiquidity
Property isn’t easy to sell quickly.
Even when it does sell, the process can take months, sometimes longer.
Unlike shares, you can’t sell a bit of a house when you need money.
That lack of flexibility can be a problem if you need cash fast.
6. Putting all your eggs in one basket
When you buy a property, you’re putting a lot of money into one place.
Often leveraging (magnifying) the risk with a mortgage.
If property prices fall or your house needs expensive repairs, your wealth takes a hit.
You're ignoring one of the basic principles of successful investing: diversification.
7. Complexity
Property isn’t simple.
There are tax returns, legal requirements, and decisions about how to hold the property (in your name, through a company, or in a trust).
Some people enjoy this kind of thing.
Others find it a headache.
8. Opportunity cost
If the seven other points didn't make you think, perhaps this one will.
By buying a property in say, Chelsea, you're taking a bet that residential property will beat commercial.
That Chelsea will outperform London, and perhaps that Number 10 Park Walk will outperform the great companies of the world.
This is speculative and non diversified.
The Case-Shiller Home Price Index (which reflects residential real estate only) shows that home prices barely kept up with inflation over the long run since 1890, with a real return of 2.9% per year from 1890-2023.
In contrast, the annualised return of a systematic portfolio of the great companies of the world since 1985 in USD, is 11.24%.
The difference of 8.34% is the potential annual opportunity cost of your decision.
This compounds over your lifetime and can have a profound impact on your future purchasing power, and thus freedom of choice.
If you prefer simplicity as many do as they age, the stock market may be a better option for you.
It offers exposure to global companies, including those in property, through funds (including Real Estate Investment Trusts or REITS for short).
Historical returns have been strong (though not guaranteed), and you can invest in a tax-efficient way using ISAs or pensions.
The best part?
It’s genuinely passive.
You don’t have to worry about broken boilers, void periods, or finding tenants.
Your investments won’t call you on Christmas Day with a problem.
And when you need cash, you can sell part of your portfolio quickly and easily.
Of course, property can be a good investment for some people, but it’s not for everyone.
Think carefully about how much time, energy, and stress you’re willing to take on.
The stock market might not have the same appeal as bricks and mortar, but it’s simple, flexible, and often less stressful.
Ultimately, the best investment is one that suits your life, not just your wallet.
If you're interested in another conundrum around property, whether to rent or buy, you should watch the latest video on my YouTube channel.
