Stocks vs Real Estate – Which is Better?

Nearly all of the world’s billionaires have created wealth through business ownership. And the way most of them owned businesses was through stocks. So stocks, by default, are the vehicle by which many of the world’s wealthy have gotten there. Does this mean stocks are always the best investment over others? Not necessarily.

Is the list of richest people duplicatable? In other words, is it possible for someone starting off with nothing today, to buy and own businesses that eventually make them billionaires? The answer is clearly yes.

However there are other methods, less versatile that can provide the same type of opportunity: real estate investing. I am talking specifically about rental real estate, real estate built for the purpose of providing cashflow.

So if I’m a young person, deeply interesting in investing and committing to becoming rich, which paths should I take? Well real estate and stocks are both broad categories that are broken more specifically into numerous other sub-categories. So let’s take a brief look at your stock and real estate options:

Stocks

Stocks, which are ownership certificates in little pieces of publicly traded companies, can be broken down into various groups depending on the size of the company. They can also be categorized based on the industry or other factors. There are two general ways to get involved with stocks: direct purchase of stocks (through a brokerage account of some kind) or the purchase of shares of a mutual fund (a “basket” of stocks that is managed by a group of investment managers).

Individual investment in stocks can be a fantastic way to build wealth if you meet the following requirements: 1) Able to control your emotions in favor of logic, 2) time commitment to researching and analyzing your choices and 3) patience.

The other stock option, mutual funds, is perhaps the least involved option. I recommend this path for most people who aren’t wanting to spend a lot of time on their investments. One thing to be aware of in this type of investment is both the type of mutual fund (large-cap vs small-cap) and the fees that the mutual fund charges.

Real Estate:

Real estate is a vast field with both commercial and residential properties to choose from. When considering an investment path you need to pick somewhere and stay consistent. Building your knowledge up in a specific area of real estate can go a long way in mitigating risk, which should always be a big concern.

The best way to create wealth with real estate is by buying rental properties. You can either buy single-family homes, multi-unit properties (2, 3 and 4 units) or commercial apartments (5+ units). You should only invest in real estate if you have both time, interest and are capable of networking and management.

Conclusion:

Stocks can be good for people who have less time and more analytical skills. Real estate also requires analytical skills, but you also have to have interest and time to make money. The best choice for you depends on these factors.

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