Invest in stocks or real estate? Here's the smart answer
Stocks and real estate are two of the most proven methods of generating a return over the last 100 years.
Even during an economic crisis, your home won't simply disappear. And though the stock market has crashed every few years for a long time, it has always bounced back and climbed to greater heights.
But which one should you choose when investing your money?
Well, every person's financial situation is unique, so it's not as clear-cut as stocks or real estate.
Let's break it down.
Benefits of stocks
-You can buy in with almost any amount
-You can buy stocks quickly - you just have to set up a brokerage account
-You can sell your stock very quickly - it just takes a few clicks
-Stock market investing is passive - you could go into a coma, wake up 10 years from now, and you'd still hold your stocks. And you probably made money too
-Tax advantaged investing
Cons of holding stock
-When you sell at a profit, you usually have to pay a capital gains tax
-Stock market returns are limited - the returns are good, but there's better out there
-You can lose money for years before you make any
Pros of real estate
-Super safe investment - we need somewhere to live
-Relatively stable market - unlikely to crash as hard as other markets
-High potential returns
-Use leverage to buy property with other people’s money
-Tax advantaged investing
Cons of real estate
-Significant investment amount required
-More leverage exposure – Loaning money comes with inherent risk
-Difficult to purchase – It can take months to buy a property
-Difficult to sell – Also takes months, unless you are willing to sell below market price
-A lot of people get involved – lots of people need to get paid
-You have to maintain the property - When your tenant calls you to fix a broken toilet, it needs to be fixed
-Inefficient on a small scale
Your Strategy Depends on Your Life Situation
What’s right for you depends a lot on where you are in life. A 25-year-old with no kids and few obligations can afford to take bigger risks.
The best investment is the one that fits your lifestyle, goals, and energy.
If you're busy working hard to excel at your career, you want to put your full focus on that. Managing a property on the side will distract from your ability to succeed with your career.
First, invest money into yourself. You can learn more skills or outsource work so you can stick to the higher value work yourself. But once you've got money saved up, you can start off in the stock market.
If you're just getting started investing, the stock market is best for many people.
You don't need to invest a huge amount of money, and in case of emergency, you could very quickly.
Make sure you only invest savings you do not plan on using for the next 5 – 10 years.
Keep in mind that any investment only works if you can stick with it. Following the market and panic-selling when they’re down will kill your success.
Leverage and Tax Benefits in Real Estate
One of the biggest reasons people choose real estate is the ability to use leverage. You don’t need to pay the full price upfront — you can loan money to buy the property, and then rent it out to cover your costs. This can supercharge your returns. If you put down $30,000 on a $150,000 house and it goes up 10%, your return isn’t 10%, it’s 50% on your original investment.
There are also major tax advantages. Real estate lets you deduct expenses, depreciate the property over time, and in many countries, you can delay or avoid paying capital gains through special programs. If you play the tax game well, real estate can put more money in your pocket than stocks, even at the same return.
Once your career winds down slowly and you've got more time, you can start investing in real estate.
Ideally, you buy multiple properties so you can hire somebody to manage them. You can hire contractors to upkeep them, and a tax advisor to help you with your paperwork.
If you do real estate well, the gains are probably higher than the gains you'll achieve in the stock market. But it's a lot more difficult to maximize your gains.
Whereas in the stock market, if you bought into only the S&P 500, you'd already be on your way. You'd already have a great strategy. That's not the strategy I personally implement, but it works well.
With real estate, being in the right state, in a growing market, knowing the tax system, finding the right properties — requires a lot of knowledge and preparation.
So, which is best for you?
People who do want access to their money, worst-case scenario, are better off investing in the stock market.
If you don't mind holding your investment for potentially decades, then real estate could be a fantastic option.
Diversification: Why Not Both?
It’s not always a matter of stocks or real estate. The smartest investors usually own both.
As you build wealth, you want your money working in different ways. If one asset underperforms, another might carry you.
You can also invest in crypto, your friend's business, or your own projects. And the returns on those are possibly a lot higher, but they're also a lot riskier.
If you only invest in risky stuff, then the chances of you losing a significant amount of money increase.
Stocks and real estate are a powerful way to get rich.
If you want somebody in your corner to help you best use your hard-earned money, click the button below and let's talk.
I will create a detailed plan how you can achieve your financial dreams.