Ask Paul: Which money plan is better - mine or my husband's?

Investment property or shares? Mary and her husband disagree on where to invest in the next few years.

Reader question

Hi Paul, my husband and I are both 31. No children but trying.

We own our home, which is worth about $1.3 million. The mortgage is $293,500.

We have a newly built investment property worth about $710,000. The mortgage is $508,000, and it's currently rented.

We also have an equity loan of $142,000 and my husband's HECS debt of about $100,000. We don't have any other debts.

We both work. Our combined monthly income is about $10,900 take-home. This is after a 15% contribution to our individual super accounts. My super is sitting at $166,000 and my husband's is $30,000.

We have about $27,000 in our home loan offset account.

Our next financial plan is to pay off the mortgage on our home in less than five years. I want to work part-time after paying off our home.

We currently don't invest in the market, but I plan on investing in mutual funds after our house and equity loan are paid off.

But my husband prefers to obtain another investment property over investing in the market.

My questions are: can I work part-time in five years, and which financial strategy is better, mine or my husband's? - Mary

Paul's response

I'd better put on my crash helmet here, Mary, I can hear your husband getting cranky with me. You are right. I admit this is a technical argument because in Australia, thanks to a growing population and limited areas of our country where we can live, property has done very well.

But so have other investments, such as shares. This is why our major super funds own no or very little residential property.

It is too labour intensive, has high stamp duty and selling fees, too many costs to maintain and run and, frankly, on a risk-adjusted basis, in particular given the lack of liquidity in residential property, other investments have historically returned more.

But I'm not arguing that property hasn't been a good investment - and it will continue to be as long as our population grows, which is highly likely.

Here we come to personal choice.

To be frank with you I don't much care whether people invest in property or shares, as long as they do something.

Technically, though, 'spreading your risk' is just common sense. Look at the returns from any decent, large, low-cost balanced super fund since the inception of compulsory super over 33 years ago. This is about 8%-9%pa. And this is after all costs, with zero effort on your part.

In terms of going part-time in five years, looking at your pool of assets, which you will build over the next five years and you will also pay off your home, providing you don't plan on buying a Learjet, the answer is yes.

Obviously, how much you spend is the key to this, but it is clear to me you are very good with money and have built a lot of wealth at a young age.

I'm not going to have a hissy fit if you buy a property, but it is putting most of your eggs in one basket. On technical terms, however it is a yes from me to your idea to spread risk and a no to more property. Sorry, hubby!

From all the Money team, we wish you the very best in starting a family.

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