The greatest investors in the world all understand one common theme when it comes to successful investing, “markets are volatile and they fluctuate.” Whether it is real estate investing or investing in stocks, there is an inherent risk. Therefore, new investors who are trying to decide whether to invest their available capital in real estate or stocks must learn to understand their own risk tolerance. To understand risk successfully, new investors must first learn some of the pros and cons of both real estate investing and stock market investing.
Real Estate Investing
1) As a real estate investor, you are in charge of the investment. Although you are at the mercy of the economy as a whole, you still have the power to refinance real estate into a lower interest rate, raise rents if you generate a passive income through rental properties or make improvements on your properties to increase the amount of available equity. By investing in stocks, you are at the mercy of money managers who dictate the markets.
2) Real estate investors put their money in real, tangible assets. With stocks, investors buy a piece of paper stating they own a portion of a company. Therefore, you can actually reach out and touch your assets when you invest in real estate.
3) Leverage is one of the most important lessons new investors should learn. Using other people’s money to build your real estate portfolio is a powerful tool you cannot use when you buy stocks.
Stock Market Investing
1) Over the past 60 years, stocks outperformed real estate in terms of return on investment by 4 to 6 percent. One reason for this difference is your ability to fully diversify your portfolio. Instead of investing in one market, such as real estate, you can invest in multiple markets and many different companies by purchasing stocks.
2) Stocks are far more liquid than real estate. If you need immediate cash or do not like the stock of the company you bought, you can sell right away. With real estate, it could take months, or years before you sell the properties you own.
3) Stocks require very little work on your part, especially if you researched the company before you invested. All you really have to do is buy the stock and then watch the price. With real estate, the investment requires constant attention, especially if you own rental properties.
All investments have some type of downside, and the list of cons attached to any investment is vast. Stocks are at the mercy of money managers and institutional investors, and real estate is at the mercy of the economy. Investors have little or no control over those market forces. However, by leveraging assets in real estate and making informed investments on stocks while assessing risk at the same time, history has shown that anyone can earn a profit from real estate investing or stock market investing.