If you've been part of our community for a while, you know that shares – particularly ETFs (exchange-traded funds) – are a staple of our journey. They’re diverse, relatively low-cost, and a popular choice among long-term investors for building passive income.

However, while we (and many FIRE folks) swear by them, it’s not the only pony in the competition.

In this Aussie FIRE episode, we are exploring whether shares/ETFs are the best way to achieve Financial Independence. Or if other strategies, like investing in real estate, could be your main driver to that destination.

Before we go any further, we’re not here to push any specific recommendations or sway your strategy. Instead, consider this a general guide so that you can decide the best path for your financial future.

(Also, to avoid confusion, when we say “shares”, we mainly refer to a basket of shares or stocks…which is essentially what an ETF is. Sometimes, though, we say “shares” when we mean “individual stocks”, depending on the point we’re driving at. This article explains the difference between ETFs and shares .)

Benefits of investing in shares for Financial Independence

There's a lot of reasons why many of us in the FIRE community lean heavily towards shares/ETFs:

1. They’re a simple way to get started

Getting started in shares/ETFs doesn't require a ton of cash. You can literally begin with just a few bucks ( it’s called micro-investing ). This is huge because it means investing is accessible right from the get-go. And as we all know, the earlier you start, the better .

Plus, starting a shares/ETF portfolio doesn’t require a mortgage either. And because there’s no debt, every dividend we receive goes directly to our goal of Financial Independence.

2. Shares are easier to manage

When you invest in shares/ETFs, there's no need to fuss over maintenance issues. We collect dividends, reinvest them, and watch our holdings grow over time. All this without having to lift more than a finger to click a mouse or touch a screen.

3. We’re putting our money into the economy’s innovation and growth

When we buy shares/ETFs, we're not just investing money. We are investing in businesses that drive our economy forward. It feels good to know that our money helps support innovation and employment.

4. Historically, the sharemarket goes up over time despite short-term dips

And, let’s set the record straight about risk. Risk often refers to the volatility of the market, where share/ETFs prices do go up and down.

But here's a comforting thought: over the long term, despite dips and crashes, the total market has, historically, rebounded over time. Now, past performance is not an indicator of future performance, but it is comforting to know that long-term investing often overcomes those dips.

Side note: This is why we are big fans of index ETFs. They act like shares, only that they’re invested in thousands of companies. This means index ETFs track where the economy as a whole is heading. No fancy attempts to predict what’s coming (because you can’t).

And if you look at the chart below, you can see that the market over the past 120 years usually favoured growth over the long term.

All this to say: while many think that the sharemarket is stressful, it can actually be quite the opposite. The simplest strategy, such as following an index, can often have a huge impact on your investing journey, despite the volatility of the market.

Can property investing lead to Financial Independence?

First off, we understand the general appeal of property investment. It feels solid and dependable. And there's something comforting about owning a piece of the Aussie dream.

Historically, property has offered stability and strong returns through a concept called leverage. As a general rule, leverage means you can use debt (therefore less of your own money, and more of the bank’s) to invest in an asset. If the property appreciates, the potential gain on your actual cash is substantially higher because most of the purchase is funded by debt.

Hence, banks see property as the safer bet, partly because of the leverage it offers. And, until a couple of years ago, you could get your hands on a sizeable loan with interest rates as low as 2 percent.

Fast forward to today, and those figures have significantly edged up. Yes, some of us still hold loans at these lower rates. But, if you’re coming off a fixed rate, or anticipating an interest rate increase, you're likely feeling a pinch (or at least anticipating it).

With that said, it’s fantastic when the property market is thriving. On the flip side, any downturn hits harder because you’re playing with borrowed money. As interest rates creep up, so do your costs.

Beyond the upfront cost, you’re also dealing with ongoing maintenance costs and possibly some unexpected expenses.

Then, of course, there’s the mortgage details. Some mortgages only require you to pay the interest for a while, which doesn't decrease the amount you owe. Others reduce both the interest and the principal, which means you're slowly paying off the house itself.

This brings us to another point: there’s a psychological side to taking on debt that can’t be ignored. Some of us might lose sleep over the 'what ifs', while others get excited about the possibilities. It’s all about your personal comfort zone with risk.

So, what’s the best move for us? It really comes down to understanding ourselves and our financial goals. Are we in a position to handle the ups and downs of a property investment?

…or are we better off looking at the other option?

Why someone would prefer shares over property for Financial Independence

Well, if we're strictly looking to build equity, using leveraging debt to buy often may sound more attractive. But what about going with a share portfolio instead? What makes shares a potentially more popular choice for reaching Financial Independence?

Many folks prefer the simplicity of shares

Anyone who's had to deal with sudden repairs or difficult tenants knows the stress it can put on both wallets and wellbeing. For instance, imagine the unexpected expense when something like a hot water system fails. Something so small can cost weeks of rent in one go.

In contrast, shares are straightforward. You invest, and if they appreciate, you make money. And yes, there are fees. But these are often wrapped into the performance so smoothly, they hardly sting.

That's why many folks in the FIRE community find shares particularly appealing. As Hayden puts it: buying shares means you're mostly free from the "gotchas" that property can spring on you.

Stable cash flow with minimal overhead expenses

We need to talk about cash flow because it's the lifeline of Financial Independence. On one hand, when they perform well, shares can offer us something a bit more substantial. For instance, you might find ASX shares providing a steady income of 4 to 4.5 percent annually through dividend yield (maybe even 5 percent if you are eligible for franking credits).

On the property side? After expenses, you’d be lucky to clear 2 to 3 percent–at least from Dave’s experience. It’s a reality many of us overlook in property investing. Over time, the numbers speak for themselves. And seasoned property investors like Dave will tell you: it's often not as exciting as it seems.

Of course, in both these scenarios, your returns depend on what shares/ETFs or what property you purchase. There are a lot of variables to consider for both.

Flexibility that fits a certain lifestyle

When it comes to investing, shares really stand out because they let us call the shots. You can pick from a variety of shares, like some in Australia that provide you with dividend payments and franking credits. Or others, like certain U.S. shares, that focus on growing over time.

With property, things are more set in stone. Once you've invested, switching up your strategy isn't so easy. That's why many FIRE folks think shares can be such a powerful tool for reaching Financial Independence. They can shape their shares/ETF portfolio to fit exactly what they need at different times in their life.

Balancing stability with predictability

With property, the rent checks can be steady, which feels great. But, the costs of keeping up a property can hit you out of nowhere. We’ve probably gone on enough about it – like those surprise repairs or times when it's sitting empty.

On the other hand, investing in shares/ETFs is a bit different. The costs are more predictable, which means fewer surprises. Sure, the amount you make from shares might go up and down, especially in tough times like COVID-19. But, as we’ve mentioned, these investments have tended to recover and grow as the economy continues to carry on.

The takeaway? Choosing between property and shares is a trade-off of sorts. It’s either more predictable expenses with shares OR more stable income but unpredictable costs with property. There’s no best option all the time for everyone. It all comes down to which one you like best from what you understand.

Can you become financially independent without shares? Is shares investing really necessary?

Now, we might sound guilty of promoting shares/ETFs as the superior investment for Financial Independence. Full disclosure – that’s not our intention.

For many of our discussions here, we often lean on Dave's experiences because he's had success with both shares and property. And while comparisons between the two are inevitable, our aim is to offer guidance rooted in real-world experience.

With that said, we believe it’s entirely possible to retire on assets like property. Obviously, a lot of folks have retired off their substantial investment portfolios. And it’s been the case for many decades. From Dave’s experience, at least, it just takes a long time and a lot of moving the pieces around to make it work for you.

Consider this case study:

Let’s say you acquired four rental properties over 15 years. Each property appreciates over time. And by the end of this period, you’re sitting on $2 million in equity.

Here’s the catch, though – equity isn't really the same as cash flow. What if, after all those years, your properties make zero each month because of high expenses and mortgage payments? What could be your options here?

Here are a few thoughts:

Option 1: Keep working and pay off all investment property mortgages

One simple plan is to just keep working and pay off your property loans over time. This is a slow burn, but it's reliable. By chipping away at your debt, you're more likely to start seeing real income from your properties. Just remember, this approach requires patience and commitment.

Option 2: Sell two properties, pay Capital Gains Tax, pay off the other two properties

Or…you could sell two properties, handle the taxes, and then pay off the mortgages on the other two. Yes, you'll have to pay some taxes on the gains. But the upside is you can use that money to pay off the loans on your other properties.

This leaves you with two properties that don't have any debt. All the rent they bring in goes straight to your pocket to speed up your path to Financial Independence.

Option 3: Sell and then invest profits into higher-yield properties, REITs, or other high-income investments

If you're up for it, you could also take the money from selling your properties and put it into investments that pay out more. A couple of options that come to mind are commercial properties or real estate investment trusts (REITs) . They typically offer better cash flow through lease or dividends. (Then again, both are unique and at times complex assets, so do your own research before considering them.)

Some caveats to remember…

As we’ve mentioned, it’s entirely possible to achieve Financial Independence off the income from a property portfolio. However, it’s worth doubling down on one thing: property investing is not exactly “passive”, as it can take up additional time and work. In some cases, it can take a long time to see any profit from property investing, depending on the property you purchased.

In the spirit of balance, we think that one great thing about owning real estate is protection from rental market hikes. For example, if rental prices suddenly jump, having your own investment property means you could move in yourself. This way you can keep your living costs stable, cut down on expenses and save more for the future.

Just remember: investing in property can lead to different results for everyone. Some people find it their calling, while others realise it’s not for them. That’s why some folks stick to the more predictable route of shares and ETFs. Because they usually land somewhere in the middle in terms of risks and returns.

Now, if you do go with property, keep in mind that it's not just about the individual properties we choose. It's really about how these investments fit into the bigger economic picture.

Everything from the price of a property to the rent we can charge is linked to what's happening in the economy at large. You’re looking at employment rates, economic growth, interest rates – among others. This is also similar to investing in shares.

So, if the market changes, it's often a sign of bigger economic changes. There's not much you can do when that happens. But recognising the patterns and speaking to a financial adviser could help you plan ahead.

Other perspective: Dave’s experience with property

When we talk about Financial Independence, everyone’s path looks a bit different (and it should be). For many Australians, though, the road to Financial Independence often starts with property investing. It’s the traditional route that we’ve always known.

And for a while, property feels like the bedrock of a solid investment strategy. We buy, we rent out, and we wait for the capital gains. Like many others, that was Dave’s original plan.

However, when Dave dug into the numbers, he found that a large portion of rental income – 40% on average – went to expenses. Almost half of otherwise a good income was consumed by maintenance, management fees, and taxes. That was a tough pill to swallow.

Dave began to seriously evaluate the sustainability of relying on property for passive income. After all, if nearly half of the income goes back into maintaining those assets, how “passive” is it really?

So, in 2014, Dave started to look more seriously at shares. Investing in shares appealed to him because it typically comes with fewer expenses than properties. And this means potentially higher and more stable returns.

He didn't jump into this change all at once. Instead, he started by selling one property and putting that money into shares to test the waters. It turned out to be a good fit for him. Over time, as he sold more properties, he increased his investment in shares.

Well, what if Dave had more time? If retiring early wasn’t his goal, maybe holding onto the properties longer AND investing in shares would have made sense. But for Dave, focusing on shares now means less stress and more income.

Now, we’re not all Dave, are we? We're not making financial decisions based on what worked for someone else.

Even so, his story gives us something to chew on: it’s totally okay to admit something’s not working for us. Because if there’s a smoother, simpler path to earning passive income, why not take it? After all, you’re only helping yourself, because personal finance shouldn’t be that hard.

To keep it balanced…

We didn't plan for this to be a big debate between property and shares. Really, we just wanted to dig into why shares are such a favourite among those aiming for Financial Independence. And while we’ve gone through general comparisons, we want you to leave with a balanced perspective.

So here are a few takeaways to consider:

1. Do you prefer simplicity?

First off, shares are popular for their ease and flexibility. They let us invest in thousands of companies without much hassle, and we can start with just a little money.

Plus, the income from dividends, especially with franking credits, can be quite appealing. It’s a straightforward way to grow our wealth without adding more work to our lives (although it’s by no means guaranteed).

2. We all have different opinions on ‘stability’

Individual shares are notorious for their extreme volatility. For some of us, the thought of seeing our investment drop by 20% in a week is enough to swear off shares forever.

On the other hand, if property were as visibly volatile as stocks, we might feel differently about its 'stability.’

The point is: we all have different levels of comfort when it comes to risk.

If you're like us, you might find a strange comfort in those market downturns. From our view, it’s an opportunity to buy more shares at a discount. Those who stay the course typically see their patience pay off as the market recovers and continues to grow over time.

In contrast, some folks find a sense of permanence in a physical property. Yes, the returns might come slower. And the cash flow isn’t always great, especially in big cities. But, they’re willing to do those trade-offs for that reassuring feeling, especially during uncertain times like COVID-19.

In the end, it’s all about what feels right for you. To each their own.

3. Why not both?

While we’re doing comparisons over here, it seems that a lot of Australians are finding that a mixed approach works for them. A recent Australian Securities Exchange (ASX) survey suggests that some Australians aren't just choosing shares or property. They’re choosing both.

And why not? Having both means you can leverage the capital growth of real estate with the liquidity and income from shares. As we’ve learned recently, good times (or bad times) don’t last forever. So, you can always change your mind and transition between property and shares whenever it makes sense.

Final thoughts

That’s a wrap on this topic. Coming up, we're giving you a closer look at our own investment portfolios. We’ll reveal why we chose these investments and how they work for us. So, keep an eye out for that one.

We hope you found our insights helpful. If you have any questions, ideas, or feedback, drop us an email at hello@aussiefirepod.com . Or catch us on our socials at @strongmoneyaustralia and @pearlerhq .

Until next time, and happy investing!

Dave and Hayden