Stocks and real estate have long been popular investment options. This is true for everyone from the first-time investor to the person who has invested for years. Perhaps you only have the funds to invest in one or the other right now and feel unsure of what to do. As we head into the second half of 2020, it appears that real estate has the advantage when it comes to investments. We discuss the pros and cons of each investment type below to help you make the right choice for your financial future.
Weighing Real Estate Against Stocks
Every investor is unique and must consider his or her budget, risk tolerance, investment style, and financial goals before deciding on an investment. Until recently, stocks have been a popular investment choice because they don’t take as much money to get started. With real estate, you need to save for several months or years just to make your first down payment. Some people find this a worthwhile tradeoff because they have a greater likelihood of earning more from their real estate investment later.
Purchasing real estate means that you own a tangible piece of land. You can earn money a few different ways with this investment. One is to rent the property to others at a monthly value that’s higher than your mortgage payment. Another is to hold onto the property for at least a few years to give its value the chance to increase. Investors like this option because it’s diverse and tangible.
Buying stock means that you own a small piece of the company. Stocks earn you income when their values increase and when you receive dividends. You can also reinvest in stocks to earn an even greater return. Of course, you want to research the company and its financial history carefully before investing in it. An ongoing pattern of increased profits is a good sign that the company is growing in the right direction. Approximately 55 percent of Americans own some type of stock currently.
Risks to Consider with Each
Sometimes people feel so anxious to get into real estate investing that they overlook the critical need for research. You must spend a considerable amount of time learning about the neighborhood, housing values, and the property itself before making such a big investment. This is true whether you plan to rent the house, fix it up and sell it, or hold onto it for several years in hopes the value will increase.
If you decide to rent the property, be sure you’re prepared to deal with repair requests, rent extension requests, and other common rental issues. You will also need to deal with the occasional tenant emergency regardless of the day or hour.
With stocks, you need to consider that world events outside of your control could make them quite volatile. This is just one of many reasons why it’s important to diversify your portfolio as much as possible. It ensures that you spread the risk around and that your losses aren’t too significant should one type of stock not perform as you had hoped.
Get More Insight on Choosing Your Investments
Real estate investments can create considerable tax benefits while stocks are easier to buy. We are available to help you weight these and other investment options as Aura Wealth Advisors. Please contact us today to request your initial consultation.