There are many investment options available in the market; however, you need to be careful in choosing the right option for your money. Most experts recommend real estate and stock market for the highest returns from your investments, but they also carry high risk with them. There are clear benefits in investing in either one of them; however, you cannot ignore the negative implications of investing in these sectors as well.
Pros of Real Estate
- Real estate deals with apartments, bungalows, commercial properties and other tangible items which people from lower or middle income group are versed with. It does not need any specific technical knowledge, unlike the stock market where you have to understand the market and stock dynamics in details for investing.
- Investments in real estate are relatively less risky compared to stock markets. The reason being stock markets are highly volatile wherein the price of share can change drastically in a day or within a trading session. However, real estate prices do fluctuate but not as dynamically as ythe stock markets. Real estate prices undergo recessionary and boom cycles which can run for years and sometime even decades.
- Investing in real estate also allows you to claim tax benefits, such as depreciation, mortgage interest cost, etc. which can be set off against taxable income to reduce your tax liability.
Cons of Real Estate
- Investing in real estate involves a lot of research and caution, as you will be investing a large amount of money which would be multifold of your annual income. You need to look into a lot of factors, like location, appreciation prospect, rental opportunity, type of loan etc. before making an investment which demands a lot of hard work
- Real estate is non-liquid asset. You cannot simply buy a property today and sell off tomorrow to move away with your profits. There are legal and long procedures for both buying and selling and moreover you also need buyers to whom you can sell property.
Pros of Stock Markets
- Stock markets tend to earn more profits in much lesser time compared to real estate. Most experts know that if one holds a property and a stock for long term; the latter will give more returns.
- It’s easier to diversify your portfolio in stocks by buying different stocks from various industries, as the ticket size of investment is relatively small. In real estate, the investment amounts are so high that seldom you can afford to buy multiple properties.
- Their biggest benefit is liquidity, as you can sell your stocks immediately to book your profits and move out of it.
Cons of Stock Markets
- The biggest drawback of stocks is the volatility. Prices of a share may go up or down dramatically in a matter of few hours or simply on the basis of a news. You may make windfall losses all of a sudden if you aren’t updated
- Profits earned in stocks attract capital gains tax. So you actually need to stretch yourself for that extra margin in order to cover for the taxes paid.
These are the pros and cons between real estate and the stock market. These can easily change depending on the location or type of stock since the market is very volatile and tends to change based on the market. This article should help give a basic understanding of how these two types of investment works and help give you knowledge to choose which one is best for you.