Introduction

The two most popular and major outlets for wealth creation include investing in stocks and real estate, each with unique pros and cons. Stock represents partial ownership in a company and can be liquid while providing a possibility for tremendous returns, whereas real estate is a tangible investment into land and structures which provide tax write-offs and asset depreciation.

This article describe the characteristics and benefits, along with downsides, of both asset classes to enable investors to make informed investment decisions based upon their financial goals, risk tolerance, and market conditions.

Stocks

A stock is more frequently called equity. A stock represents ownership of a fractional part of the issuing corporation. The units of stocks are termed as shares which the owner is entitled to some proportion of the assets and the profits of the corporation according to the number of stocks he holds.

Stocks are traded mainly on the stock exchanges and constitute the backbone of many individual portfolios. Stock trading is regulated by the government in order to protect investors from fraudulent schemes.

Advantages of Stocks

Stocks are highly liquid, pretty easy and relatively fast to sell. On top of that, stocks are flexible and can reallocate into a retirement account-tax-free-when the money is being withdrawn from the account. On top of that, many stocks find it pretty easy to be better than real estate in any given year. With many being so volatile, seeing companies increase 20% or even 50% during a year is not something that’s uncommon.

Disadvantages of Stocks

Stocks can be pretty wild and unpredictable, depending upon how the economy and your company is doing. Not only are stocks emotional investments often times, but many decisions within the market itself may seem irrational. And not only will you see potential investors in the long term with this type of stock investment, but sometimes in a very short-term one too, as they consider a possible bankruptcy or have declared one themselves.

Real Estate

This word defines real, or tangible, property, and often covers land, buildings, airspace over the land, as well as subsurface rights underneath it. As a business term, real estate covers creating, purchasing and selling real estate. Therefore, the role of the economy through construction, buying sales of real estate, developing will spur growth, though other elements such as hiring/creating jobs, purchasing behavior and investment levels tend to be affected.

There are primarily two kinds of real estate, namely, “commercial” and “residential”. Though others exist- mobile home parks, strip malls, apartment buildings, office buildings, storefronts, and single-family houses-they essentially fall into two categories. Now, when it comes to making money in real estate, this is not entirely a science. There is the more traditional route for some in the form of “home flipping”: one looks around for distressed properties, refurbished them, and sold the property for an increased sum at a greater market value. Others look for places they can lease thereby paying constant rent.

Advantages of Real Estate

There are many great advantages one will receive from real estate investments, such as ability to depreciate the assets, tax deductions, selling a property through a technique known as a 1031 exchange, in this you will not pay for any capital gains taxes-so long as you invest your monies into a like kind type of property.

Disadvantages of Real Estate

As with every investment, real estate comes with its downsides, too. First and foremost, the investment is illiquid. In most cases, you cannot sell the property immediately when you invest in one. You may have to wait for several years before you can reap the actual profit potential of the property. Furthermore, closing cost can amount to thousands of dollars and may also include taxes, commissions, and fees.

Another thing, real estate prices shift. Long-term prices may increase, but at times the prices will go down or stable. And if you already borrowed too much from the property, then making a payment with less money in the worth of the property could really be a problem.

Conclusion

Both stocks and real estate are viable options for investment, but their needs and objectives are usually different. Stocks are generally liquid, flexible, and can appreciate in value quickly but are unpredictable. Real estate offers stability and tax advantages but requires a longer-term commitment in terms of its illiquidity. It will, therefore, come down to the personal finance goals of each investor, including investment horizons and what type of risk one takes. Knowledge of these finer details of each will actually give the investor the powers to construct diversified and robust portfolios in accordance with his goal.