Investments can give you maximum returns, but working out where to invest can be confusing. With many financial wizards spreading prophecies of a coming recession, consumers are becoming hesitant about investing in either real estate or the stock market. Participating in the real estate and stock market, in particular, represent two of the most popular wealth-building strategies. Both offer cash flow and passive income, but both offer a unique set of pros and cons, that both deserve a spot in one’s retirement portfolio. Further, continue reading to decide - Investment in stocks or real estate. What is better? And know which is considered the better wealth-building vehicle for you…
Investment in stocks or real estate - What is better?
Investing in stocks
When you invest in a stock, you are buying a piece of a company. Therefore, you are entitled to a profit if any, for every share owned. Stock investors have lots of options available and are considered to produce more liquid than real estate. They can invest in dividend stocks, penny stocks, blue-chip stocks, and index funds – each bringing their risk-reward profiles to the table. Besides, there are many online platforms where investors can freely trade stocks. But, if you are new to investing in stocks, it would be wise to carry some pretty serious research before stepping on that course of action.
Stock marketing pros and cons
- Higher rate of return – The biggest advantage of investing in the stock market is that it produces a long term growth rate, which is hard to beat. It’s quite easy to invest in stocks as soon as you open a brokerage and fund it with cash.
- Offers much more liquid – In case, you don’t like a stock or need immediate cash, you can easily sell your stock holdings. This is flexible in terms of real estate, where you require a tremendous amount of time and effort.
- Lower transaction costs – Online transaction costs are lower, no matter how you have to buy or sell. Whereas, real estate is still an oligopoly, which fixes commissions on a ridiculous, high level of 5 to 6%.
- Less work – Stocks involves less work. You can manage and track and your portfolio yourself with the help of many free financial tools online or can hire a financial advisor at 1% a year.
- More variety – With stocks you can invest in different sectors and different countries. Equally, can invest in what you use.
Risks of investing in the stock market
As with any investment, there are two sides to every coin. Below are listed some of the cons of investing in stock marketing. Let’s have a look…
- While stocks are safe, there’s always a chance you can lose money – especially if you don’t know what you are doing or make beginner investor mistakes.
- Investing in stocks can never work well if you tend to act on emotions such as greed and fear.
- There’s a lot to learn if you want to be good at investing in individual stocks (which take time and effort).
- The stock market can be volatile.
Real estate marketing
Real estate investment is familiar to most of us. It‘s an attractive way to make money – which involves buying physical properties in one way or another. Investing in real estate must be approached correctly with the right knowledge of the market and situation and the kind of property you are investing in. If this is done wisely, it can offer a profitable and reliable kind of investment providing substantial returns in the long run.
Real estate pros and cons
You are investing in something tangible – Investing in real estate results in a tangible asset. No matter what happens to the trade, the property will always be worth it.
- Tenure of investment – Real estate investment will suit long term investment with excellent returns.
- Leverage – Real estate can be purchased using other people’s money. Using leverage, borrowers can buy multiple properties or homes using a down payment.
- Tax advantages – Real estate offers powerful and unique tax advantages when compared to stocks. Rental houses, apartments, vacant land or plot, commercial buildings, industrial, shopping centers and warehouses all offer their variation of tax incentives (most of which act as a tax shelter for one’s income).
- Earning potential – Real estate investing can provide you a regular monthly income if you go for a rental arrangement. You can also use this to manage your mortgages.
- Cash flow – Real estate remains is one of the most proven wealth-building strategies for investors (to date).
Risks of investing in real estate
- Requires more involvement – Investing in real estate isn’t as simple as opening a brokerage account and putting some money to an index fund. It requires more hands-on work.
- Higher barrier to entry – You can get started with stocks with just a couple of bucks. But you need thousands of dollars to get started in real estate.
- Not a liquid asset - It can be hard to get out of real estate quickly, as sometimes some properties don't sell immediately. This means it's an illiquid asset class.
- There's no guaranteed return - Like plenty of properties fall in value in the first few years after purchase, with some staying underwater for a long time.
Stock or Real Estate Investment! – What’s right for you?
In conclusion, both stock and real estate investments have benefits, risks, and drawbacks. A true financing success relies on a fair and modified portfolio made of several different instruments. So, analyze the potential opportunities and threats before arriving at a decision.