The right investment strategy is essential to achieve one’s life goals at the right time. With many investment options, the stock market is popular among investors with a high-risk tolerance and those looking for lucrative returns. Another investment avenue that attracts many Indians is the real estate market, characterized by relatively low risk and value appreciation over time.
Find out how real estate investing and stock market investing differ, and which is better based on one’s goals, financial situation, and risk appetite.
Real estate vs stock market: Features
Before choosing between real estate and the stock market, one must understand the features of both. The salient features of real estate and stock market investment are summed up in the table below:
| Parameter | Real estate investment | Stock market investment |
|---|---|---|
| Ease of investment | To invest in real estate, one must look for viable properties through brokers/owners, along with visiting the location, making down payments, and completing relevant paperwork. | Stock market investing involves opening a Demat and trading account. Hence, it requires a smaller investment sum. However, one needs to research well before picking suitable stocks to invest in. |
| Recurring costs | Real estate investment involves taxes, maintenance costs, utility costs, etc. | The stock market investment includes brokerage charges, taxes, etc. |
| Risks involved | Real estate is not immune to market risks, but long-term holdings can offer lucrative returns. | Stock investment is more prone to market volatility but can offer higher returns if held for the long term. Further, impulsive buying and selling can lead to losses. |
Real estate vs. stock market: Returns
Usually preferred by individuals due to its tangible nature, real estate investment offers returns through rents and value appreciation. It involves a heavy investment initially unless one is investing in real estate stocks or mutual funds, but it is an excellent way to boost monthly income through renting or leasing.
There are four types of investment properties in India: residential, commercial, industrial, and land. Real estate investment returns may vary depending on the type, location, quality, and guidance value.
On the other hand, the stock market investment allows one to buy a portion of a company. The value of the stock increases or decreases based on the company’s performance. When the company makes a profit, it is transferred to the shareholders in the form of dividends. Further selling the shares at the right time can also help generate lucrative returns.
Real estate vs stock market: What to choose?
Choosing between real estate and stock market investing depends on one’s financial condition, goals, investment horizon, and risk appetite.
While good real estate investments require heavy initial investments and quality research, they are less prone to market volatility and ensure the long-term security of capital. Along with the opportunity to build capital, real estate investment also protects one’s income against inflation.
Compared to the stock market, real estate is less liquid, but the long-term cash flows offer passive income and the promise of value appreciation. In addition, the less liquid nature of real estate helps keep the money invested for a longer duration and provides long-term security during one’s retirement.
Further, real estate can be leveraged, allowing an individual to invest and expand holdings without making a one-time cash injection. One can borrow from banks, credit unions, and mortgage lenders to buy real estate properties and pay the sum back over time.
Individuals can also invest in the real estate sector through Real Estate Investment Trusts (REITs). These are corporations that manage high-value real estate properties’ portfolios and mortgages. These trusts lease the properties, collect rents, and distribute them among the shareholders as income and dividends. Hence, by investing in REIT stocks, one can possess high-value real estate properties and earn dividends to boost capital.
On the other hand, stock market investment involves less capital and requires a Demat and trading account, but is more volatile than real estate investment. But with online trading platforms providing research advisories and investment tips, one can make the best investment in the stock market and generate higher returns.
Stock market investment also offers the opportunity to invest in real estate shares. Moreover, stock market investments are highly liquid, allowing an individual to buy and sell shares multiple times a day through a trading account.
To sum it up
Real estate and the stock market are lucrative investment options to diversify one’s investment portfolio and assure high returns over the long term. While both real estate investing and stock market investment are the most preferred asset classes among Indians, understanding the differences between both is crucial to make an informed decision.
Also, before choosing an investment avenue, individuals must evaluate factors like income, financial goals, investment horizons, risk tolerance, the initial investment, etc.
Disclaimer- This article is based on the information publicly available for general use as well as reference links mentioned herein. We do not claim any responsibility regarding the genuineness of the same. The information provided herein does not, and is not intended to, constitute legal advice; instead, it is for general informational purposes only. We expressly disclaim any liability, which may arise due to any decision taken by any person/s basis the article hereof. Readers should obtain separate advice with respect to any particular information provided herein.
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