It’s a question that has crossed the minds of many: should I invest in stocks or real estate? Both carry the potential to provide you with financial benefit in the long run. Still, it can be arduous to pin down the right choice especially being a beginner.
Keeping all in view, we’ll compare and contrast the two investment options, making it easier to decide where to put your money.
What Are Stocks And Real Estate?
Stocks are essentially a piece of ownership in a company. Buying a stock or share is synonymous with purchasing a tiny fraction of the company that issues the stock.
For example, let’s say you buy one share out of 1000 on one of the stock trading platforms of XYZ Corporation for $100. You now own 1/1000th of XYZ Corporation.
On the other hand, real estate is property such as land or buildings. When you invest in real estate, you’re essentially buying a piece of property that you can use, rent out, or sell for a profit. It is more of a tangible investment and carries a physical presence.
How Do You Invest In Stocks?
You can either buy stock individually or with a group of people, most commonly known as a stock mutual fund. You have the ultimate power to decide what platform you want to use to invest in: you can opt for some stock trading platforms online or go to a broker.
Buying stocks individually of a specific company means you take the whole responsibility. For example, you believe XYZ Corporation will be the next big thing, so you buy 100 shares of its stock for $100. If the company’s stock price goes up to $200 per share, you’ve made a profit of $10,000. Of course, if the stock price falls to $50 per share, you’ve lost $5,000.
Investing in a stock mutual fund is a bit different. You’re pooling your money with other investors and investing in many stocks with a mutual fund. Mutual funds diversify your risk and can help you avoid significant losses if one stock doesn’t perform well.
An alternative method of getting exposure to stock price movements is via CFD trading (contracts for difference). These are financial derivatives that track the price movement of the underlying asset, in this case a specific stock. CFDs allow you to trade the price movements of a stock without needing to own the underlying company share.
Pros And Cons Of Investing In Stocks
- In stocks, money works for you. While the stock market is volatile, over the long term, it has trended upwards. One such example is Tesla; within two years, the stocks have gone up to an ATH of around 1200 dollars from merely 40 dollars.
- People come across like-minded people who help them understand the market and its volatility.
- Unlike investments such as bonds backed by the government offering fixed returns, there’s no guarantee that you’ll make money on your stock investments.
- The market can be volatile, and you can face unexpected financial losses.
How Do You Invest In Real Estate?
One option is to buy a property, such as a rental house, and then rent it out to tenants. Rental income is the only guaranteed income. You can also purchase commercial buildings such as shops or markets and try to sell them at a profit if the price increases. Furthermore, you can also rent them out to make a stable monthly income.
Pros And Cons Of Investing In Real Estate
- Real estate has the potential to offer high returns. Also, unlike stocks, you can control your investment.
- It provides you peace of mind. You decide how much to charge in rent and what type of tenants to accept.
- The value of your property could drop without any intimation if there is a recession or other economic downturn.
- You may have to face maintenance issues and repair bills.
There’s no easy answer for investing in stocks or real estate. It depends on your individual goals and risk tolerance. Both carry the potential for people seeking monetary benefits. Ultimately, the best way to decide is to do as much research as possible to see what makes sense for your unique circumstances.