How young people can become as rich as their parents without having to buy property

Young Australians can become richer than baby boomers simply by choosing shares over property.

Homes with a backyard are beyond the reach of an average-income earners with Sydney’s median house price last month surging to $1.061million, making older Australians even richer.

Monthly mortgage repayments of $4,500 would be impossible for a single person on an average, full-time salary of $89,000.

People under 40 would also be unlikely to make big, short-term gains on a cramped, one-bedroom Sydney apartment, selling for $500,000, with oversupply issues keeping a lid unit values, even as house price records are set across most of Australia.

Shares can instead be a better investment, with the likes of Afterpay and CSL delivering handsome rewards to investors willing to take a risk.

Young Australians can become richer than baby boomers simply by choosing shares over property. Homes with a backyard are beyond the reach of an average-income earners with Sydney’s median house price last month surging to $1.061million, making older Australians even richer. Pictured is a Toongabbie house with a seven-figure price tag

CMC Markets chief market strategist Michael McCarthy said that since 1955, shares had delivered average annual returns of 7 per cent, compared with 4 per cent for property, when the compounding effect of returns was factored in.

‘Share markets outperformed property as a whole, it’s not just those top performers like CSL and Afterpay,’ he said.

‘It depends on you and your risk appetite.

‘Some people want to take that risk, they’ve got money they’re prepared to lose if worse comes to worse, and they’re comfortable with taking those high risks in the hope of very, very high rewards.’

In March last year, during the start of the Covid shutdowns, Afterpay shares dived from $40 to just $8.80.

Since that time, stocks in the buy now, pay later app have surged last month hitting a record $154, as its market capitalisation surpassed that of Telstra.

Afterpay shares in one year have surged from just $8.80 to $108 after peaking at $154. Pictured is billionaire Afterpay founder Nick Molar with his wife Gabrielle

The share market stars
Afterpay: $8.80 in March 2020, $108 in March 2021

CSL: 76 cents in 1994, $265 in 2021

Afterpay’s value fell back to $108.65 as of Wednesday after the Commonwealth Bank, Australia’s biggest bank, unveiled its own buy now, pay later platform.

Nonetheless, a bargain hunter who bought Afterpay shares a year ago would still have made $12 for every dollar that invested in the company, that turned Nick Molnar and Anthony Eisen into young billionaires in just six years.

So $100,000 that could have funded a 20 per cent mortgage deposit on a $500,000 unit would be worth $1.2million if it had been spent on Afterpay shares a year ago.

That would have turned a young person with savings into someone richer than a baby boomer with a mid-price Sydney house.

Still, Mr McCarthy said Afterpay was a risky investment with the Commonwealth Bank of Australia’s new buy now, pay later app a bigger threat to its business model than a smaller competitor like Zip Co.

‘They’ve got the resources to compete very effectively and they have the existing customer base so they can reach a lot of Afterpay’s customers because they’re existing CBA customers as well,’ he said.

CMC Markets chief market strategist Michael McCarthy said Afterpay was a risky investment with the Commonwealth Bank of Australia’s new buy now, pay later app a bigger threat to its business model than a smaller competitor like Zip Co

Afterpay could also face another threat from a major American deposit-taking bank, with its business based on US customers.

‘The big risk for them is actually the US market, that’s where their growth profile is strongest,’ Mr McCarthy said.

By comparison, a baby boomer who bought a house during the mid-1990s would have seen their investment multiply by five times in value.

In 1994, Sydney’s median house price stood at $194,375, Macquarie University and Real Estate Institute of Australia data showed.

This had surged to $1.061million by February 2021 as prices rose by 3 per cent in just one month marking the biggest gain since 2003, CoreLogic said.

But someone who instead put $194,375 into CSL shares in 1994 would have turned that investment into one worth $68million.

CSL was last year the biggest company on the Australian Securities Exchange and one share is now worth $265.61, after the Therapeutic Goods Administration this week approved of its application to manufacture the AstraZeneca Covid vaccine in Australia (pictured). One CSL share was worth just 76 cents in 1994

The federal government’s old Commonwealth Serum Laboratories, which made snake antivenin, was privatised in 1994 and floated on the Australian stock market with a share price of just 76 cents.

CSL was last year the biggest company on the Australian Securities Exchange and one share is now worth $265.61, after the Therapeutic Goods Administration this week approved of its application to manufacture the AstraZeneca Covid vaccine in Australia.

‘It is an extreme example because investors rarely put all of their money into a single stock – that is a high risk approach,’ Mr McCarthy said.

‘In this case, it would have paid off so handsomely you’d be well retired by now.’