It’s a bit of a false contradiction to choose between stocks and real estate as investments. Obviously, we can add both to our portfolio, but most people choose one or the other. It is said that everyone is a fan of Shahid Afridi or Atif Aslam, and similarly, most people either believe in the value of the stock market or they believe in the value of the real estate. There is not much gray area in the middle.
There is no need to convince anyone about the importance of investing in 2022. As inflation continues to rise and the purchasing power of national currencies declines, financial advisers recommend investing. The only question is what kind of asset to choose. The most popular and potentially profitable stocks and real estate. This article aims to highlight the basic differences between these two popular assets and help you decide which one is right for you.
Real Estate vs. Stock Market
Needless to say, one thing doesn’t need to be excluded, and a lot of people work both, buying real estate and shares. All things considered, diversity will not hurt you. Having a good rental property and owning shares that add value – seems like a great idea. But for those who are just starting out on their investment path and wondering where to start, let’s compare the characteristics of these asset types and try to choose the one that works for you.
Purchasing real estate costs more money than purchasing shares in a company. Thus, entering the stock market is cheaper than becoming a property investor. About $200 – $1000 will be enough to buy few shares of an average company or partial shares of large companies. Real estate, on the other hand, requires large sums of money from the investor, even when borrowed investment is involved. So before you invest, consider the amount you are willing to spend.
Liquidity is the ease with which an asset can be converted into cash. In other words, if you need money urgently, how quickly can you sell a house or stock? Liquid assets are easily sold. Real estate is considered one of the least liquid assets. Depending on the stock you are interested in, there are more or less liquids. Blue-chip stocks are highly liquid. Penny stocks cannot boast of high liquidity.
Transaction Costs and Other Expenses
Buying and selling real estate is more expensive than buying and selling stock. Real estate agent commission, taxes and fees are required when buying a home. After owning a property, you are obliged to pay property taxes, insurance, maintenance, utilities, and sometimes real estate management. When it comes to ownership of company shares, you only pay a small brokerage commission.
Unlike stocks, real estate is solid and easy to understand. That’s why traditional investors like it. It is considered more stable and reliable than the volatile stock market. Novice stock investors are more prone to the stress associated with fluctuations in the value of their assets. As such, they are more likely to succumb to feelings of fear and greed, which can lead to irrational behavior, such as selling stocks when the price drops temporarily.
Up and Down
The stock market is more volatile than real estate. If you look at it as a long-term thing, it doesn’t just make it a bad investment. If you know that you will spend your days worrying about the daily price fluctuations of index funds, then investing in stocks may not be a good idea. Remember, the word investment means long term commitment. Housing prices are far less volatile than stocks, which can be considered a partial advantage.
Neither the real estate nor stocks are safe from financial risks. None of them are resistant to the economic downturn, such as the Coronavirus crisis or the 2008 financial crisis. Lack of knowledge is one of the most common causes of loss of money in both real estate and stocks. People lose money in stocks when they work hard or invest in the wrong shares. Another common mistake is to buy high-priced stocks, which will definitely fall in price due to poor research. The same risks are associated with real estate. The only way to buy property is to have a clear understanding of the costs involved and the potential for profit.
Although the stock market may seem abstract while housing is tangible, stocks have significant advantages over real estate. Historical evidence suggests that stocks outperform real estate and other types of assets. Profits from the stock market can reach 20%, while real estate produces very little profit. In addition, housing is an illegal asset compared to stocks and is difficult to get started due to large down payments. Regardless of the factors mentioned above, you should choose an asset-based on your personality.
Some people just love real estate – they know the market, they are good at finding the best time to find and buy and sell great properties, and they end up making a lot of money. In any case, stocks are probably a better idea. Choose your investment wisely based on how much money you are willing to spend, your risk tolerance, and thorough research. Be wise – your success will depend on the quality of your analysis before you invest your money.