Real Estate Investment VS Stocks: Which Is Better?

Which is better for your investment portfolio: stocks or real estate? Let’s find out which is better for you and your financial goals.

Investing in Stocks

You become a company shareholder when you invest in stocks, thus profiting on sold shares when company stock values rise or remain held while paying you dividends. While individual stock investments allow investors to profit or incur losses due to company stock performance, mutual funds, and ETFs enable portfolio diversification.

Stock Benefits

One major upside to investing in stocks is their high liquidity. It’s significantly easier to know the value of your investment, as you can invest in company shares at any time. Furthermore, there are little to no transaction fees, as many brokers offer a selection of no-transaction-fee index funds, ETFs, and mutual funds. Lastly, stocks can help grow your tax-advantaged retirement investment accounts.

Stocks Downsides

Unfortunately, stocks have some less-pleasing aspects. For instance, stock prices are more volatile than real estate, as they move up and down much faster. It can lead to uncomfortable situations and can significantly impact your investment portfolio. Furthermore, investors should know that selling stocks can result in capital gains tax, along with paying dividends taxes on your portfolio if paid out during the year.

Investing in Real Estate

Real estate investing is available in two categories: commercial properties—such as office buildings, strip malls, and single-family apartment complexes—and residential properties. These categories can also lead to 721 and 1031 exchanges, Opportunity Zones, and more.

Real Estate Advantages

One benefit to owning real estate investments is the tax advantages. If you own and sell commercial properties, you can defer capital gains taxes by performing a 1031 exchange and receiving tax breaks. While 1031 exchanges don’t have a specific holding period, the IRS requires investors to hold their investments for at least one year.

Furthermore, investing in real estate is incredibly straightforward: buy a property, manage the upkeep, and resell it for a higher value. Lastly, real estate investments increase in value with inflation.

Real Estate Disadvantages

Sadly, one real estate investment disadvantage is the amount of work you must put in. Investing in real estate means maintaining properties, such as refurbishing, rent collecting, repairs, and more. Also, real estate has higher transaction costs.

Which Is Right for You?

Many investors choose either option to help accumulate wealth over time to help them determine whether stocks or real estate investment is best. Other than their significant benefits, they differ in accessibility, rates of return, liquidity, and risk. As such, market conditions and your financial goals can also significantly affect your returns.

Investors must consider many factors before making any investments. So, contact a financial advisor before investing in your first stock or real estate property.