Investing in both real estate and the stock market can be an ideal way to maximize gains and minimize losses inside of your portfolio. However, it is important that you understand the difference between these two asset classes and the pros and cons of both. This can help you make informed investment decisions that maximize your chances of a secure financial future.
Why Invest in Real Estate?
One of the best reasons to invest in real estate is that it is not correlated to the stock market. In other words, when the stock market is falling, home prices may remain steady or increase. When the stock market is volatile, the price of a home can remain relatively steady. Therefore, real estate can act as a hedge against losses in the stock market during bear or excessively choppy markets.
Another great reason to invest in real estate is that there are many ways to do so. If you don’t want to buy a home, you could invest in the mortgage on the property instead. You could also choose to be a hard money lender, which means that you lend to developers or those looking to finance a home flip. These loans carry relatively little risk as they are secured by the home and are have terms of only a few days or weeks.
Why Invest in Stocks?
One of the best reasons to invest in individual stocks is that you can double or triple your money in a matter of months or years. To minimize your risk, you can invest in mutual funds or ETFs that give you broad exposure to a sector of the economy. Index funds are also available that aim to track the general movement of the S&P 500. Since the indexes tend to offer predictable returns over the course of years or decades, they can offer as close to guaranteed profits as you can find in the stock market.
Which Is the Better Investment?
Ideally, you will invest in both stocks and real estate if you have the opportunity to. Since you don’t actually have to own a home to gain exposure to the real estate sector, you can feel confident in adding it to your portfolio. Buying shares in REITs can be ideal for income investors as they tend to have high dividends. In most cases, an IRA or 401(k) is going to invest in stocks on your behalf, so you will have exposure to the market almost by default.
Regardless of what you choose to invest in, it is important that your money is allocated in a way that meets your goals and risk tolerance. If you have any questions about where your money should go, feel free to take with a financial planner or similar professional.