When deciding whether to invest in real estate or stock, there isn’t a simple answer. Identifying the better choice depends on your personality, lifestyle preferences, comfort with risk, and more.It also depends on timing.
Real Estate vs. Stocks
When you buy shares of stock, you are buying a piece of a company. As the value of the company’s shares grows, the value of your stock also grows. When you invest in real estate, you are buying physical land or property. Some real estate is cash-generating, such as an apartment building, rental houses, or malls.
Pros of Investing in Real Estate
Most people are more familiar with real estate as an investment than with stocks.
- Provides month-to-month cash flow if you rent it out.
- It’s easier to avoid fraud with real estate.
- Debt (leverage) is safer with real estate than stocks.
- Real estate has historically served as an effective inflation hedge
Cons of Investing in Real Estate
- Much more work as an investment than stocks.
- Can cost you money out of pocket each month if your property’s unoccupied.
- The increase in real estate value, in actuality, doesn’t increase much when factoring in the inflation rate.
Pros of Investing in Stocks
- Over 100 years of stock market returns history shows them to be a consistently good wealth creator.
- You can own part of a business (through stock shares) without having to do any work.
- If you own shares in a company that pays dividends, your share price and your dividend amount may both grow over time.
- You can diversify much easier with stocks than with real estate, especially with mutual funds.
- Stock investments are very liquid so your money’s not locked up for weeks or months.
- You can borrow against the value of your stocks more easily than with real estate.
Cons of Investing in Stocks
- Successful stock investing requires an unemotional approach, which is difficult for the majority of investors.
- Stock prices can fluctuate very much in the short run, which can leave inexperienced investors worried.
- Dividend-paying stocks may look like they haven’t grown in value at all during sideways market conditions.
Choosing Between Stocks vs. Real Estate
Both real estate and stocks can provide long-term financial gain, and both come with risks. When choosing the right investment strategy for you, the best way to hedge against that risk while taking advantage of the potential gains is to diversify as much as you are able.