Physical Investments Versus Stock Investments
April 23rd, 2012 | 
Author: Comparing physical investing to stock investing is like comparing apples to oranges, as you are essentially trying to accomplish the same goal, but through different avenues. The decision as to whether you should invest in real estate or stocks is a very personal one, and depends completely on your style and what you want. Each investment strategy has the potential to make you big bucks and, as with many of life’s big questions, the answer isn’t cut and dry. The following are some of the pros and cons of each type of investment.
Investing in Real Estate: Pros
- It is often the case that lower and middle class people feel more comfortable investing in real estate. It makes perfect sense that people who grew up with a limited amount of money would find value in the essentials of life, the most important one being ownership of a home.
- For many people, investing in real estate is psychologically easier simply because property is tangible, and it feels good to be able to see the investment. For the same reason, investing in real estate makes you less vulnerable to fraud than with stocks.
- Leveraging in real estate is significantly safer than using loans to buy stocks.
- Real estate investments are a much better hedge against inflation if there were to be a sudden decrease in the purchasing power of the dollar.
Investing in Real Estate: Cons
- Owning real estate takes a significant amount of hands-on work to deal with all the things that could possibly go wrong with a building such as plumbing, gas leaks, rotting decks, leaky roofs, and so on.
- Real estate has monthly costs such as taxes, maintenance, utilities, insurance and more, so you could end up spending extra money if the property remains unoccupied.
Investing in Stocks: Pros
- More than 100 years of experience has proven that, despite all the crashes, buying stocks and reinvesting the dividends has been the greatest wealth creator in the history of the world. Right now, no other asset classes come close to what you can potentially make from stocks.
- Stocks are extremely liquid compared to real estate investments because, during regular market hours, you can be buying shares and selling shares in a matter of seconds. With real estate you may have to wait months or even years before you can find a buyer.
- Good stocks not only increase your profits every year, but they also increase cash dividends as well. This means that if the businesses you invest in are successful, you will receive larger cheques in the mail every year.
Investing in Stocks: Cons
- Just like stocks have the ability to generate the largest amount of wealth, they can also do just the opposite. Investing in stocks is like gambling, and so you have to be willing to lose from time to time. Investors that are too emotional, undisciplined or greedy may end up losing money because of psychological factors. For example, many people take their money and run after a market crash, at the very moment they should have been buying.
- Stocks respond to just about every whim in the economic and political arena, which causes the price of stocks to fluctuate wildly in the short-term. This can be hard for some people to deal with, especially if a stock goes from $80 to $10 overnight. This is why some people prefer real estate: at least when the market crashes they still have somewhere to live.
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