If you're asking the question, "Should I invest in real estate or stocks?" you're on the right track! However, investing can be daunting. Most people think of loud, angry suits shouting at each other on Wall Street. But you don't have to be a financial nerd or wizard to start investing your money wisely.
So where should you start? Real estate? Or stocks? When it comes down to it, one really isn't better than the other and both are probably ideal. it's a matter of personal preference, the specifics of the investment, goals, and resources. Your return is dependent on what you invest initially and involves some risk and strategy, depending on how involved you want to be. Let's begin by taking a look at the difference between real estate and stock investments.
Real Estate investments:
The basics:
- Tangible investments that hedge against inflation
- Require work, planning, and often a sizeable initial investment
- Great long-term investment
- Does not give you immediate return or liquidity
Investing in real estate requires planning and research beforehand to decide where you want to invest, what type of property you are looking for and how much money do you have to invest. Real estate is a good long-term investment and may help you build wealth over time.
You may want to purchase a plot of land and let it appreciate in value over time to then resell it to someone else or a developer. Or you may want to purchase an income property - a duplex, property with a back house, or a property with an extra room that you can rent out for passive income. Income properties can be a great investment, with a two-fold benefit. As they appreciate in value over time with the promise of an ultimately profitable resale, you can also make passive income or pay the mortgage with the monthly rent.
Like any homeowner, with an income property, you will have to deal with repairs and unexpected expenses. Investing in several properties can ease the cost of repairs. Managing tenants comes with the territory too, but you can always hire a property manager to help! Or live out your dreams of being the ultimate AirBnB host!
Now let's talk about stocks!
Stock investments:
The basics:
- Liquid investments that are easy to diversify
- Takes some strategy
- Returns can fluctuate but are more easily accessible
Investing in stock means you're purchasing a piece, or share, of a company. Depending on how many shares of a company's stock you've purchased, you'll get a return of that company's overall profit.
Understanding the right stocks to buy can be tricky unless you're constantly reading financial news and researching a company's financial statements. But that's where financial advisors, human or automated, can come in handy. There are also quite a few apps that make basic investing easy and fun (like RobinHood or E*Trade). Websites like Wealthfront or Ellevest are robo advisor sites that allow you to create an investment profile based on income, amount to invest, investment length, and risk level to generate a diverse portfolio of stocks to spread your money around based on an algorithm.
In the long run, despite market crashes, stocks are generally a sound financial investment and can build you wealth over a long period of time. With stocks, you get the benefit of a company's performance without the headache of owning or managing the business itself. You can also start small with stock investments - $100 can be diversified vs needing a large sum of capital to invest in any property.
Both real estate and stock investments come with their perks and drawbacks. But both options have great opportunity for extreme wealth building if you do your research, talk to professionals, and feel good about where you're putting your money.