Which Should You Choose: Investing in Stocks or Real Estate?
While both stocks and real estate are popular investment types, choosing between the two often comes down to your unique personal and financial goals. "If you are highly focused on saving for long-term goals, such as retirement, stocks can be a good option for earning greater potential returns to put toward your savings," says Jessica Salazar, managing partner at Northwestern Mutual. "If you are more interested in another avenue for stable income or increased cash flow, real estate investments could be a better choice for you."
However, before you make any type of investment, Salazar says it's crucial to consider all of the potential risks involved. "Both real estate and stocks typically hold lesser risk in the long-term (10 years), as they are often positively correlated and increasing," she explains. "Short-term, both can be unpredictable, just as life is."
Interested in learning more about the pros and cons of investing in stocks and real estate, so you can determine which one might be the smarter choice for you? We asked a few financial experts to break down both investments and here's what they had to say.
Stocks could provide a higher return of investment.
According to Salazar, investing in stocks has the potential for a higher return on investment, making them great for long-term financial goals. "With stocks, you have part ownership in a company—as the value of the business increases, your share of that value will increase as well," she explains. "You also have the opportunity to receive dividends from this type of investment and can choose a variety of companies to invest in to create a diversified portfolio."
Online stock brokerages are easy to find—and navigate.
Thanks to a rise in user-friendly online brokerages, like E*Trade and Robinhood, Chris Davis, investing specialist at NerdWallet, says it's easier (and more affordable) than ever to start investing in stocks. "Virtually anyone can set up an account and start investing on that same day, whether that's a $10 or $10,000 contribution," he explains.
The stock market fluctuates—a lot.
Since the money you invest in stocks can fluctuate depending on the market, Salazar says stocks generally carry more risk compared to other types of investments. "If the value of the business you've invested in declines, the value of your stock will as well," she explains. "If you are more risk-tolerant and looking for the chance to earn a higher return, you'll likely want to consider stocks as an investment choice. However, if you are more risk-averse, there are other investment opportunities, such as bonds or mutual funds, which often offer lower risk."
Real estate is a tangible investment.
The biggest perk of investing in real estate is that unlike stocks, properties are tangible assets. "You have control over many of the decisions involved in real estate investments, such as how much work you're willing to financially commit to improving your properties," Salazar says. "Property improvements, through renovations or other home projects, can add significant value to your investment and lead to greater returns when you sell. You also have the opportunity to earn additional ongoing income by renting out your properties."
The real estate market is volatile.
With a real estate investment, Salazar says that you have the potential to be impacted by whether the market is a buyer's or seller's market, as well as how much time, money, and effort you put into your property. "The value of a real estate investment could depreciate significantly in a short period of time, especially in the case of an economic downturn," she explains.
Property upkeep can be costly.
Whether you're a homeowner or landlord, Linda Bell, personal finance expert at NerdWallet, says it's important to remember all of the maintenance costs associated with owning a property. "Keep in mind: every month you don't have a buyer or renter, you will have to pay a mortgage on a property that isn't bringing in any income," she advises. "Maintenance, which may include taxes, insurance, and upkeep of the home, can be a significant cost associated with an investment property."