Real Estate vs. Stocks: Which Is the Better Investment?

Real estate and stocks are two of the most popular investment options. Both can be profitable, but each has its own risks and rewards. So which is the better investment? Well, it depends on a variety of factors, including how much you have to invest, your risk tolerance and your overall investment goals. 

To help you make an informed decision on which investment opportunity is right for you, we’ll take a closer look at the nitty-gritty of investing in real estate and stocks.

Investing in Real Estate 

When you invest in real estate, you’re buying property. You may be purchasing a primary residence to live in year-round, buying and flipping homes for a profit or purchasing an investment property to rent. There are also commercial real estate options to consider, such as office buildings you can lease out or larger apartment complexes you can manage.

While real estate investing has some risks, it can be a very lucrative endeavor. 

One key to success in real estate investing is to do your homework. You must research the market and understand the ins and outs before you dive in.

It also helps to diversify your real estate portfolio by investing in different types of real estate, such as long-term rentals, flipping properties, real estate investment trusts (REITs) and more. This way, you can offset any potential losses with gains from other real estate investments.

You can choose from a few options to fund your real estate investments. You can use your savings, take out a loan, pull equity from another property or use real estate crowdfunding. Either way, you’ll need a solid plan in place before you start investing.

Since real estate is a physical asset, it can be a more hands-on investment than stocks. For example, if you’re flipping properties, you’ll need to be involved in the process of rehabbing and selling the home. And if you’re a landlord, you’ll need to deal with tenants, repairs and other day-to-day responsibilities of being a property owner.

From March 1992 to March 2022, the average real estate return in the U.S. was 5.3%. And in March 2022, U.S. house prices grew 17.5% year-over-year – an increase from 17.4% for the previous quarter.^[1]

Investing in real estate can be a great way to build your wealth over time. But it’s important to remember that real estate is a long-term investment. 

Investing in Stocks

Like real estate, you can make a lot of money by investing in stocks. But how do stocks work?

Think of a publicly traded company as a pie. When you buy shares of that company, you’re purchasing a tiny slice of that pie. As the company grows and becomes more successful, the value of your slice will increase. And if the company pays dividends, you’ll receive a portion of those profits.

Of course, stocks can also go down in value. Even the most successful companies can have down years. So it’s essential to diversify your portfolio by investing in different types of stocks across different industries or risk levels.

You can also limit your risk by investing in index funds. Funds spread your investment out over a large group of stocks or mutual funds managed by professionals.

Historically, the average return on investment of the S&P 500 was roughly 10% per year.^[2] If you invested $1,000 in the S&P 500 today, you could expect to have $6,000 in 20 years.

Of course, past performance is no guarantee of future results. But while stocks may be a more volatile investment than real estate, they can also offer the potential for higher returns. With the help of a financial advisor, you can minimize your risk and maximize your chances for success.

Pros and Cons of Investing in Real Estate

While real estate has the potential to offer a high return on investment, it’s also a more hands-on investment than stocks. And it may take years to see a return on your real estate investment. Let’s look at the pros and cons of investing in real estate:

Pros and Cons of Investing in Stocks

Whether you’re investing in stocks for the long term or looking to make a quick profit, there are risks and rewards associated with this investment option.

Real Estate vs. Stocks: Which Is Right for You?

So which is the better investment? Real estate or stocks?

The answer depends on your investment goals, risk tolerance and financial situation.

Think of it as an apple to oranges comparison. You can’t say which is better, but you can decide which one is right for your unique circumstances.

Here are a few things to consider:

If you’re looking for a long-term investment, real estate may be the better option. There are no guarantees, but real estate tends to appreciate in value over time.

If you’re looking for a more passive investment, stocks may be the way to go. Once you’ve bought shares in a company, you can sit back and let your investment play out.

For investors who are risk averse, real estate may be the more appealing investment. Although there’s a possibility that your property could lose value, it’s typically less volatile than stocks.

On the other hand, if you’re comfortable with risk and looking for a higher potential return, stocks may be the right investment. Given the historical rate of return, stocks have the potential to generate more wealth than real estate.

It’s also worth noting that real estate can be a more expensive investment than stocks. Between the real estate agent’s fees, closing costs and repairs, there are a lot of upfront costs associated with purchasing a property.

However, you don’t have to choose between real estate and stocks – you can always invest in both!

The bottom line is that there’s no right or wrong answer when you’re deciding whether it’s better to invest in stocks or buy a house. It all comes down to research and choosing the investment option that aligns with your financial goals.

And if you decide you want to invest in both, that’s OK, too! Be sure to consult with a financial advisor. They can help you develop a personalized investment strategy and provide guidance along the way.

Invest Wisely

No matter what you decide, remember that there are no guarantees when you’re investing. But as long as you’re comfortable with the risks and are making informed decisions, you’re on the right track!

Whether you’re looking for a long-term investment or something more passive, real estate and stocks both have the potential to generate wealth. Just remember to do your research and invest wisely!