split image of office buildings and a stock chart screen

Two of the most popular investments that people often venture into are real estate and stocks. Investing in properties and in the stock market both can be profitable. On the other hand, some people have been unfortunate to put their money in properties or certain company stocks, only to end up with losses. So, while real estate and stocks can each generate loads of profit, it can also be a conduit pipe that can suck up all your savings and leave you bankrupt. However, the secret to being successful lies in how much due diligence you can put in, right from the onset.

Traditionally stocks have always been more popular option than the real sector, however, what many do not know is that not only is the latter an excellent alternative, but equally offers even better returns and lower risk to your capital.

Diversifying one’s portfolio is a smart way of hedging funds against uncertainties that may crop up along the line, as well as for future benefits. It could be an avenue to save for college, plan for retirement, or as a way of earning additional income. So, let’s go head-to-head to determine the one that would be best for you.

Real Estate Vs. Stocks.

For stocks, there are two ways you can make money: through dividends (regularly paid by some companies) or when/if the company’s stock value appreciates (also note that this can equally go the opposite way and you end up losing money).

For real estate, you can make money by collecting rent on your property (this can be a stable way of earning money) or when the land or property they bought appreciates in value relative. Real estate offers an additional advantage in the sense that it is tangible and you’re at liberty to do whatever you want on it, unlike stocks that can only be related with in terms of files and figures.

Returns for Stock Market Vs. Real Estate

One of the major motivating factors in choosing between stocks and real estate is the potential return they yield on investment. Stock investing can be highly beneficial when it is accompanied by catch-up contribution/company matching. Unfortunately, such added benefits are rare , so most investors are left with whatever returns that accrue to them, which can be highly unpredictable or even disappointing at times. However, returns on real estate can be less volatile and more predictable. But how much returns you get will depend on the sort of property you bought.

Comparing the returns of real estate and the stock market is an apples-to-oranges comparison—the factors that affect prices, values, and returns are very distinct. However, we can get a general idea by comparing the S&P 500 ETF Total Return (SPY) and the Vanguard Real Estate ETF Total Return (VNQ):

Pros of Real Estate Investing

home construction site

Investing in real estate will enable you to enjoy substantial tax benefits. In addition, you can earn a steady passive income while your property could also appreciate over time.  It can also help you to hedge your fund against inflation. You can be guaranteed predictable income as well as appreciation if you’re working with certain companies such as Roth Capital among others.

Cons of Real Estate Investing

Real estate is not so liquid, in the sense that you can’t just sell it at the snap of your fingers if you’re in urgent need of money. Also, it costs money to manage a property in the areas of repairs and maintenance. Other disadvantages include its high cost and illiquid nature, involves more work relative to stocks and you’re not 100% guaranteed that it will appreciate.

Pros of Stock Market Investing

monitor displaying a stock chart

It is not mandatory to put down large sums of money when investing in them and stocks are liquid, which makes it easy to buy or sell them unlike real estate, thus making them reliable whenever you’re in urgent need of money. They are easy to diversify and have low expenses.

Cons of Stock Market Investing

Stocks are volatile in nature, i.e. they can appreciate or depreciate in value over a short time. They can expose you to high taxes. Their value can remain flat for years.

Other Factors to Consider

It requires a huge initial capital outlay to invest in property relative to stocks. But owning property will enable you to earn rental income which you can utilize to offset costs in property taxes, mortgage or insurance. Also, your rent will keep appreciating even during inflation.

Final Words

Stocks and real estate both have their pros and cons, even though the latter obviously has an edge everything being equal. You can also consider investing in both of them as a way of diversifying your portfolio.

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We hope you found this blog post on Real Estate Or Stocks: The Best Way to Earn Money useful. Be sure to check out our post on 5 Facts About Land Investing to Make You Rethink Real Estate for more great information!

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