REAL ESTATE November 23, 2019

Real Estate Investment Vs Stocks Investment

For people who is looking to growth their money, finding the right investment in 2019 is not easy. We often hear that the stock market and real estate are the most profitable investments in the long term. However, these two investments are different from each other. While equity markets have been rising for several years, is this still a good time to invest? Should we favor real estate, which is less subject to a sudden reversal?

ups and downs of the stock market

Investing in the stock market, good or bad idea?

The answer to this question depends on your investment strategy. The stock market has always fascinated us because it can generate significant capital gains in a short period of time. But by investing with a short-term horizon, the investor is not immune to a rapid market downturn and therefore very significant losses. In reality, if you invest over the long term, your profitability will depend mainly on when you have invested. If you buy shares at the highest level, it will be difficult to achieve good profitability, even over the long term.  Also, after more than 6 years of bull markets and at a time when many market concerns are emerging, such as rising interest rates or oil prices, we must now be cautious.

Many investors have become accustomed to a constantly growing market and forget that markets follow cycles. After a bull market comes inevitably a consolidation or a bear market. This does not mean selling all your shares because it is always difficult to predict what tomorrow will bring. But it is therefore essential to review your investments to ensure that the proportion of equities in your portfolio is not too high. In addition, your equity investments themselves must be sufficiently diversified not to be affected by a sudden change in a parameter.

real estate investment and time

Real estate as an alternative?

Real estate investment can indeed represent an alternative or a complement to stock market investment.  So why should you invest in real estate? First, in real estate “you can control your own financial destiny”. That means you are able to see the flow of your money. You can decide who is going to manage your properties. Secondly, it is a market that tends to be more stable than the stock market. When the real estate market suffers, the value of properties does not fall by 5% in 10 minutes. That is completely different to what happens in the stock market.

Valuations are generally proportional to the fundamentals of a property and its market. Another important aspect is the Tax Benefits. Income properties have tax advantages. Even when the land has not depreciation, the building has it. The IRS assigns a lifetime to buildings (27, 5 years for residential properties and 39 years for commercials). Then depreciation is an expense when you are doing your finances. Nonetheless, despite the IRS take depreciation as a decrease in value of the property along the time, most buildings well maintained has a considerable increase in their values over time. Even if there may be market reversals, real estate is, by its nature, an asset that appreciates.

If you are looking for a long-term investment, you only have to look at the historical evolution of property prices to see that a property always increases in value over time. It is true that shares are more liquid and therefore easier to sell and with lower costs. However, it has a higher risk of investment.

Diversifying is the key

In conclusion, equities and real estate are two asset classes that have advantages and disadvantages. It is therefore important to hold diversified savings and to use real estate investment to avoid excessive fluctuations when stock markets are volatile.