When weighing up stocks vs real estate, which is the better investment strategy? We explain the pros and cons of each to help you decide.

Stocks vs Real Estate: Which Is the Better Investment?

Are you trying to find a great way to invest your money and build your wealth? 

You’re likely stuck between whether you should invest in stocks vs real estate.

For beginner investors, these are the two easiest routes to get into. These are also where fortunes can get made.

Unfortunately, these are also where fortunes can get lost forever.

So how do you decide which one to invest in? How do you make sure you take calculated risks and reduce losses as much as possible?

Here’s what you need to know about investing in stocks vs real estate:

Assess Your Risk Tolerance

You have to always assume you’ll lose when you make an investment. This helps you assess your risk tolerance. 

Between investing in stocks and investing in real estate, you can risk a low amount.

With recent innovation, you can buy fractional shares of larger companies through platforms such as Robinhood or Titan.

For example, if the stock for Apple or Amazon is $1K+ per share, you don’t have to buy one full share. You can invest as little as $5 to buy fractional shares.

With real estate, there are now options to invest in real estate funds (known as REITs). As with stocks, you can invest a few dollars in such a fund.

However, to make major profits from real estate you want to be the whole owner of a property. As such, this carries a much higher risk tolerance.

What Are Your Investment Goals?

Take a moment to think realistically about how much money you wish to earn and by when.

For example, let’s say you wish to earn $100,000 within 1 year. Your next step is to calculate how much you can earn each week or month until you reach this goal.

You can then assess which of these two investment methods will work. For example, if you buy a stock will it reach $100K by the end of the year? Do these stocks pay dividends each quarter that can reach your goal?

The major problem with stocks is that they’re speculative. One cannot predict whether the market will soar or crash.

With real estate, you can collect rent each month. If you have a luxury property you might get higher returns each month.

However, you’ll also have more expenses with real estate than you would with stocks.

You should look into how to start investing in real estate before you make an investment in a property. 

What’s the Fastest Route?

You have to remember that investing is for the long run. To make your best returns you have to be patient.

However, there are routes that are faster than others. As a general rule, real estate has proven to provide better returns in a shorter timeframe.

As a landlord, you’re guaranteed to earn money each month when you charge them rent. If they don’t pay rent, there are legal protections that can help you get compensated.

Selling a property can be a greater challenge. In times of economic depression, it’ll be tougher and you’ll still have to pay your mortgage. Even when you rent your property, you’ll have to cover expenses for it. 

With the stock market, your best returns will only come if you own several shares. Owning fractional shares won’t bring you great returns. 

You also have to wait for huge changes in a company to profit from it. For example, if Apple launches a new iPhone the stock might rise. However, it’s unlikely to soar. 

Your best bet is to choose a stock in its early stages. However, you’ll have to wait years to make your fortune from selling this stock.

Stocks: Pros and Cons

What are the pros and cons of investing in stocks? Here’s what you should know:

Pros:

  • Easy to buy: Through your laptop or smartphone you can quickly buy your stocks at any given time
  • Easy to sell: With the click of a button, you can sell your shares and get your profit right away
  • Low fees: You don’t have to worry about high fees with buying and selling stocks

Cons:

  • Speculative: You have to study the markets and a company and speculate on the possible success
  • Volatile: Your stocks can soar one day and completely crash the next day
  • Taxes: You might incur a high capital gains tax after you sell

Real Estate: Pros and Cons

Now let’s look deeper at some of the pros and cons of investing in real estate.

Pros:

  • Easy to understand: You can easily learn how to assess a great property
    • Once you find your property, you have to decide whether to sell it or rent it out
  • Mortgage: You can take a mortgage and then start earning from your property immediately
    • You can use your returns to pay your mortgage and pocket the rest
  • Always in demand: While house prices can fluctuate, you know that real estate is an asset that will always have demand

Cons:

  • Difficult to liquidate: You have to hope you’ll find a buyer or tenant who wants to pay money for your property 
  • Great returns aren’t guaranteed: You might not find consumers who are willing to pay the value of the property
  • It’s hands-on: You’ll have to make sure that you can dedicate the time to maintain the property or handle any issues

You have to decide whether the pros outweigh the cons when choosing stocks vs real estate. It’s also best to focus on one avenue before diversifying your portfolio.

Stocks vs Real Estate: Which Do I Choose?

Now you know the advantages and disadvantages of stocks vs real estate. You have to first assess your risk tolerance and set your investment goals.

Then you have to look deeper into the pros and cons of each to decide which is best for your personality.

The key takeaway is that you have to be patient with whichever option you choose.

You also have to take time to study the market and understand your investments before you place your bets.

Please share this guide with others interested in investing. You can find more great financial content on our website!

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