Asking the questions, “Which is a better investment—real estate or stocks?” is like asking if pizza is better than tacos. (Pizza, obviously.) But really, it comes down to preference. When you buy real estate, you’re purchasing a physical property that you may then rent out or live in as it appreciates. Purchasing stocks means buying small slices of a company that entitle you to a proportionate amount of its profits.
Historically, real estate’s return on investment is just a touch over 7% annually, while the stock market is just a touch under 7%. The risks are surprisingly similar for two such different equities: The consequences of a changing market. The rewards of real estate can be a bit more when a property is in good working order and occupied – remove any of that and it could actually cost you money each month.
Part of the rewards of stock investments are the liquidity – or, how easily you can get to your money. You can sell off your shares and get your cash in just a few days. Anyone who has bought or sold a house knows that’s not the case with real estate. If your aim is to generate passive income, and you don’t mind being very hands-on, real estate may be the choice for you.
Prefer a more hands-off approach? Try stocks. However – as investment strategies go, they do work well together. Some might opt for long-term stock growth to fuel their retirement and rely on the passive income of a rental property to fund their lifestyle now.
So which should you invest in first, real estate or stocks? So much of investing is personal, and this is no different. Hands-on, hands-off, better together – it’s all up to you and how involved you’d like to be.