With the recent downturn in the stock market many investors are looking at real estate and other alternative investments. I personally like to invest in real estate and equities. I like having the diversification in my investment portfolio. I believe both asset classes serve a valuable role to me on my journey to financial independence. You may have a preference for one asset class over the other and that is perfectly okay! There are plenty of wealthy individuals that only invest in real estate and vice versa. Today’s article is not investment advice I’m just sharing why I like both of these asset classes.
Stock Market Investing
1.) Dividends. This is my favorite part about owning equites. Quarterly cash payments just for owning a stake in world class companies. For me it can’t get much better this is one of the truest forms of passive income. I don’t have to do anything other then keep holding and I can continue collecting my dividend checks.
2.) Diversification. In the stock market one can easily diversify their holdings. You could simply buy an index to have exposure to the S&P 500 or you can diversify buying individual stocks in several different sectors of the market.
3.) Liquidity. Stocks are much more liquid then real estate. Stocks can be bought and sold anytime the markets are open. Where with real estate it can be a much more lengthy process to get in and out.
4.) Pride of ownership. In all fairness this could also apply to real estate. For me personally though I take greater pride in the pieces of real businesses I own in my stock portfolio. I own a small piece of so many world class companies and it brings me so much pride and joy.
5.) Transaction Cost. This may not apply to every situation, but overall in my experience the transaction costs are much lower dealing with the stock market. Especially in todays environment with many brokers going to commission free. Real estate on the other hand often has many recurring expenses , agent fees , closing costs , etc.
Real Estate Investing
1.) Tangible Asset. My favorite part of real estate investing is owning a tangible asset. No matter what the market does I own physical property that I can feel, touch, and see.
2.) Equity. The more I pay down my mortgage on my primary residence the more equity I build in my property. One day I will own my house outright and no longer have to worry about making a mortgage or rent payment which will lower my expenses in retirement.
3.) Stability. One thing I like about real estate in comparison to stocks is the stability factor. With real estate you’re probably not watching the fluctuations of the market day to day like with stocks. Also with the costs and effort it takes to sell real estate you may be more likely to stay calm during down cycles. The housing market also tends to be much more stable then the stock market during times of uncertainty.
4.) Control. When you own real estate it’s much more hands on then the stock market. With stocks you just own a small piece of the pie and don’t have control of what said business does. In real estate if you own the property you have much more control over your investment.
5.) Tax Advantages. There are various tax benefits for owning real estate. For example there is mortgage interest deduction and rental property depreciation. I’d recommend looking into all the various tax advantages with the IRS as everyone’s tax situation is not the same as mine.
Conclusion
Both real estate and the stock market have their risks and rewards. Which is why diversification amongst both is the way for me. Right now I’m more focused on the stock market because I want to generate as much passive income from dividends as possible to fund my lifestyle.
I could see myself shifting towards real estate in the future. I like the many different options we have now for investing in real estate. You can invest in physical properties, real estate investment trusts a.k.a. REITS, crowdfunded real estate, etc.
Let me know what you think in the comments below. Thanks for reading!
