I decided to switch it up a bit today.
Instead of focusing on the latest development in the financial markets, how about we look at an age-old question.
That is, which is a better investment option—real estate or stocks?
Without further ado, let’s dive right in.
Benefits Of Investing In Stocks
Let me start with stocks, as that’s our focus at Lahardan Financial.
One reason most investors prefer this asset class is because it is simply more accessible.
If you have $10 on you, you can begin purchasing stocks.
You can’t do that with property, where initial investments typically require tens of thousands of dollars at least.
Moreover, with as little as $1,000, you can buy a whole portfolio of different stocks.
This brings me to the second benefit of stock investing over real estate investing—diversification.
Because of the high price tag associated with real estate investing, it can be costly to diversify your portfolio that way. For most people, it’s difficult to afford more than one or two properties.
Another reason why stocks can be the preferred asset class is liquidity.
You can trade them in an instant, whereas finding a buyer for your property can take time.
Not to mention that you have to meet with potential buyers, prepare all the paperwork, pay the administration fees, etc.
Another hassle, which investors often forget about, is maintenance.
You’re dealing with a physical asset that, like it or not, will require work from time to time. Whether that means plumbing, new electricity, re-painting the walls, roofing, or other construction work, the fact is, you’re going to incur unforeseen costs from time to time.
Again, that’s something you don’t have to deal with if you own stocks.
Having said all that, let’s consider areas where real estate performs better.
Benefits Of Investing In Real Estate
Real estate will always have a special place in my heart because I cut my teeth in that industry.
And, despite all the pros of investing in stocks, buying property does provide some distinct advantages.
One of them is lower volatility.
Stock prices tend to be all over the place, zig-zagging up and down.
Real estate prices, on the other hand, fluctuate far less, because transactions are less frequent.
This makes it more difficult for an investor to sell holdings out of fear or to buy more because of greed—which can be common occurrences with stocks.
Another reason why real estate can be a better fit is that it’s easier to understand what you’re buying.
When you look at a house, you can size up the quality of the construction, the micro-location, and the pros and cons of the surrounding neighborhood all pretty quickly. All of this can make it relatively easy to estimate how much that property is worth.
When you’re buying a stock, you need to know how to read the financial statements, what the industry outlook is, whether the valuation justifies the company’s fundamentals, and so on. It can take years to master those skills.
In addition, for some, the owning brick and mortar provides a level of comfort that you don’t get from holding a piece of paper.
The final benefit of investing in real estate is protection from hyperinflation.
While both assets increase in value when inflation is reasonable, stocks react negatively when inflation levels increase out of hand, as high inflation rates indicate broader economic bad news.
That’s not the case with real estate, because it’s a physical asset. An excellent recent example of this reality is Argentina, where real estate transactions switched to U.S. dollars when the Argentine peso currency collapsed.
Verdict: Which Asset Class Is Better?
In the end, the answer to the question, “Which is better” depends on your preferences.
I would recommend that you hold equal portions of real estate and stocks.
That way, you get to reap the benefits of both.