When it comes to building wealth through a self-managed superannuation fund (SMSF), one of the key decisions trustees must make is where to invest. Two of the most popular options are shares and property.
Both offer advantages and challenges. While there’s no one-size-fits-all answer, it helps to understand the pros and cons of each to make an informed decision that aligns with your financial goals and risk tolerance.
One way to see how trustees are approaching this decision is by looking at asset allocation trends. This refers to how SMSF investments are spread across asset types – like shares, property, cash and fixed interest – to balance risk and return.
According to the Australian Taxation Office’s March 2025 quarter SMSF data, investment in listed shares grew 0.6% year-on-year, while residential and commercial property investments were up 6.6%.
This suggests growing confidence in property as an SMSF asset class, even as shares remain popular for liquidity and diversification. So, how do the two stack up when you weigh the benefits and trade-offs?
One of the most attractive features of shares is liquidity. Unlike property, which can take weeks or months to sell, shares can be bought and sold the same day. This allows SMSF trustees to respond quickly to changes in market conditions or personal circumstances.
Additionally, shares allow you to diversify across industries and locations. This can help reduce risk and smooth out returns.
Shares can be tax-effective. Dividend income is generally taxed at a maximum of 15% during the accumulation phase, and capital gains tax (CGT) on assets held for over 12 months is taxed at a discounted rate of 10%. Once your SMSF moves into the pension phase, both dividend income and capital gains can be tax-free.
The liquidity of shares makes it easy to rebalance your SMSF portfolio if your investment strategy changes.
Shares can be more susceptible to short-term volatility. For instance, in April 2025, when US President Trump announced new tariffs, the Australian Securities Exchange experienced its sharpest downturn in five years, dropping 3% in two days.
Managing a share portfolio requires regular research and monitoring. Trustees without the time or expertise may find this a burden. Hiring a financial adviser is an option, but it adds cost.
Unlike property investment, shares don’t typically build equity in a way that allows you to access additional funds through borrowing within your SMSF. Leveraging equity is another way to build wealth within your SMSF.
Property offers the appeal of a physical asset, which can feel more secure.
Additionally, over the long term, residential property in Australia has shown consistent growth, despite short-term downturns. According to Cotality (formerly Corelogic), national median dwelling values rose 66.4% between May 2015 and May 2025.
This trend is supported by a 2018 study from Russell Investments, which found that residential property outperformed all other asset classes over both the 10- and 20-year periods to 2017 (see graphs).
This long-term growth also provides you with equity to use for more wealth-building, be it through property investment or other strategies.
Rental income can provide your SMSF with a stable and predictable cash flow. This can be especially helpful during retirement when regular payments are needed.
Property ownership in an SMSF can offer tax advantages beyond CGT concessions. You may also claim tax deductions for depreciation, helping to offset rental income and reduce tax.
Buying property through your SMSF can involve high upfront costs, including stamp duty, legal fees and SMSF setup or restructuring.
For example, if you bought a median-priced dwelling in Sydney for $1.2 million (as of May 2025), based on New South Wales’ stamp duty regulations, this could cost you $46,000–$50,000, depending on the property and structure used.
Unlike shares, property is not a liquid asset. Selling can be slow, and you may need to compromise on price or terms. This can be a challenge if your fund needs to make pension payments or cover unexpected costs.
If you want to take out an SMSF home loan for property investment, you must do so under a limited recourse borrowing arrangement (LRBA). This means if your SMSF defaults on the loan, the lender’s claim is restricted solely to the property in question, which protects other assets within your SMSF.
These arrangements require a specific structure, such as a bare trust, and come with added compliance requirements.
Additionally, there are regulations governing the property itself, including that it cannot be lived in or rented by a fund member or your related parties, and it must satisfy the ‘sole purpose test‘ of solely providing retirement benefits.
Buying property through your SMSF can be a strategic way to grow your retirement savings, but it comes with complexity and strict rules. Before making a move, speak with a qualified mortgage broker who understands SMSF lending to ensure the strategy fits your goals and stays compliant.
Thinking about buying property through your SMSF? Speak to the expert team at Shore Financial. We can guide you through the rules, structure your loan correctly and help you make the most of your investment strategy.Call us on 1300 416 700, email us on info@shorefinancial.com.au or fill in this online form.
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