Property or Stocks?
Many investors have traditionally turned to the stock market as a place to invest their money. Stocks are a well-known investment option but, if you don’t already know, buying property is an excellent investment too! It is becoming an increasingly popular alternative to stocks, offering lower risk, yielding better returns, and providing greater diversification.
At Brentor property, we understand that whether it's planning for retirement, saving for a university fund, or paying for amazing holidays, individuals need an investment strategy that fits their budget and needs. Comparing an investment in property to buying stocks is a good place to start.
A few things to consider:
The decision to invest in property or stocks is a personal choice that depends on your financial situation, risk tolerance, goals, and investment style.
Property and stocks have different risks and opportunities.
Property investing is not as liquid as stocks and tends to require more money and time. But it does provide a passive income stream and the potential for substantial appreciation.
Stocks are subject to market, economic, and inflationary risks, but don't require a big cash injection, and they generally can be easily bought and sold.
Which one is best for you?
Investing in property or stocks is a personal choice that depends on your financial situation, risk tolerance, goals, and investment style. It's safe to assume that more people invest in the stock market, perhaps because it doesn't take as much time or money to buy stocks. If you're buying property and you want to fly solo, you're going to have to tap into savings or raise finance to put down a substantial amount of money. You can read about raising finance and why we use other people’s money here. Alternatively, you can invest with us using much smaller amounts for higher returns.
When you buy stocks, you buy a tiny piece of a company. In general, you can make money two ways with stocks: value appreciation as the company's stock increases and dividends.
When you buy property, you acquire physical land or property. Most property investors make money by collecting rents (which can provide a steady income stream) and through appreciation, as the property's value goes up.
For many prospective investors, property is appealing because it is a tangible asset that can be controlled, with the added benefit of diversification. Property investors who buy property own something concrete for which they can be accountable.
There are a number of considerations for investors when choosing between investing in stocks or buying property as an investment.
Now Let's Look at the Returns
Investing in the stock market makes the most sense when paired with benefits that boost your returns, such as company matching, but those perks are not always available and there is a limit to how much you can benefit from them. Investing in the stock market independently can be unpredictable and the return on investment (ROI) is often lower than expected.
Comparing the returns of property and the stock market is an apples-to-oranges comparison. The factors that affect prices, values, and returns are very distinct and naturally, both property and stocks can take a big hit during economic recessions.
And the Risks?
Stocks and property have very different overall risks.
For example, when it comes to property and the risks associated with it, the most important risk that people miss is that property requires a lot of research. It's not something you can go into casually and expect immediate results and returns. Property is not an asset that's easily liquidated, and it can't be cashed in quickly. This means you can't cash it in when you're in a bind.
For home flippers or those who own rental properties, there are risks that come with handling repairs or managing rentals. Some of the main issues you'll come across are the costs, not to mention the time and headache of having to deal with tenants. Although a good lettings manager could always mitigate this risk, just factor this into your bottom line if you aren’t going to self-manage your portfolio.
The stock market is subject to several different kinds of risk: market, economic, and inflationary risks. First, stock values can be extremely volatile with their prices subject to fluctuations in the market. Volatility can be caused by geopolitical and company-specific events. Say, for instance, a company has operations in another country, this foreign division is subject to the laws and rules of that nation.
But if that country's economy has problems, or any political troubles arise, that company's stock may suffer. Stocks are also subject to the economic cycle as well as monetary policy, regulations, tax revisions, or even changes in the interest rates set by a country's central bank.
Other risks may stem from the investor themselves. Investors who choose not to diversify their holdings are also exposing themselves to greater risk.
Dividend paying stocks can generate reliable income, but it would take a considerable investment in a high-yielding dividend stock to generate enough income to sustain retirement without selling additional securities. Relying solely on high-yield dividends means an investor may miss out on opportunities for higher growth investments.
So what should you do?
Well here are some pros and cons for both to help you decide:
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Passive income
Tax advantages
Hedge against inflation
Ability to leverage
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More work than buying stocks
Expensive and illiquid
High transaction costs
Appreciation isn't guaranteed
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Highly liquid
Easy to diversify
Low transaction fees
Easy to add to tax-advantaged retirement accounts
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More volatile than property
Selling stocks can trigger big taxes
Some stocks move sideways for years
Potential for emotion-driven investing
The Bottom Line
Property and stocks both present risks and rewards. Investing in property is an ideal way to diversify your investment portfolio, reduce risks, and maximize returns. Keep in mind that many investors put money into both the stock market and property.
If you like the idea of investing in property but don't want the headache of dealing with contractors and finding tenants, and would like to reduce the risk, get in touch today! At Brentor Property we specialise in hands-free property investing.
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