Whether you should invest your hard-earned money in real estate or the stock market, has always been a question you might have found yourself pondering over many a time. This is a dilemma almost every investor be it a fresh-starter or a seasoned veteran, is caught in.
There are people with success stories in both these worlds. You read about them in financial magazines and watch them talk on TV, share their journey with you. These stories might tempt you to put your money in attractive real estate opportunities or dabble in the alluring stock market, but comparing them generically and asking what works for a random investor is an unfair question.
There is no perfect answer to it, rather it depends on your individual capacity of knowledge, interest and drive to be successful in either of them. The success also depends on the specifics of the said investment.
To dissect this further, let’s take a look at what these two kinds of investments are really about -
Real Estate - Investing in tangible things that you can feel and hold to call your own. This is an asset in a physical state like a plot of land or a constructed property. Some real estate costs you money (when they are not leveraged with a sale or lease) and some earn you money (through sale or lease or appreciation).
Stocks - Buying stocks is like buying a piece of a company. You become eligible for getting a share of its profits (if it pays dividends to its shareholders) without having to show up to work every day. But you also take the risk of losing some or all your investment when the share value plummets.
So which is the better investment?
Both real estate and stock investments have a long-standing history of earning the big bucks for their investors as well as incurring losses when managed poorly.
A strong acumen for financial management is important for a stock investor to succeed. He/she should be aware of market fluctuations and have the ability to take swift unemotional decisions. This way trading up the stock market ladder will be less tedious.
On the other hand, real estate investment doesn’t necessarily require technical knowledge but a knack for the trade goes a long way. Comparatively, its a more comfortable and far lesser-risk investment. Unlike stocks, where you have no say in the operations of the company whose stocks you own, with real estate you are your own CEO. You make the decisions for your property and profit directly.
Now let us see how they stand-off each other -
| Real Estate |
Stocks |
- You own a tangible asset - land or built property
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- You own intangible assets - equities, bonds, mutual funds etc
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- More people are familiar with it and its a more comfortable choice
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- Not everyone is familiar with how they work and there is lesser interest
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- Its easier to avoid fraud in your dealings
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- Your stock trade is more susceptible to fraud
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- It requires a bigger out-of-pocket investment to start trade
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- It requires a bare minimum investment to start trade
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- You control decisions about the property you own
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- You have no say in the governance of the company whose shares you own unless its a substantially significant amount, which is very rare
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- If left unmonetized, your property will cost you money with no returns (eg - in maintenance, public fee)
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- Your stocks will keep accruing in value or diminish, even when left unleveraged (eg - no active transactions, raised for debt, etc)
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- Though they pay back in long-term, real estate investments are lesser-risk and less-prone to abrupt depreciation
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- Though stock investments are renowned good wealth creators, the opportunity comes with greater risk and very frequent extreme fluctuations in value
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Real estate and stocks both present their risks and rewards. With stock investments, it depends on you how you can take on risks and maneuver your way through a dwindling market.
But if you wish to reduce risks and maximize your returns without having to toil so much, real estate investments remain the safest bet.