There are two very very polarizing camps when it comes to this question of property-versus-stocks, and I’ve seen it personally.
- Property people swear by real estate only and dislike the market fluctuations of stocks
- Stocks people love stocks (think of people like Warren Buffett or Bogle)
So, which is better?
Lets talk about pros and cons
Property
Pros
- physical: easy to understand and rent out
- leverage: banks are willing to loan you to finance real estate (based on your income) up to 80%
- tends to appreciate in time (especially good locations)
- tends to be good store of value (especially in good locations and countries/cities)
Cons
- high start up costs: 20% of a $1M property is $200K…and if banks not willing to loan, are you gonna pay in cash?
- local (versus buying a REIT that has buildings across multiple countries)
- illiquid: you cant decide to sell your property today and have that money in your bank account – it may take weeks or months (as well as fees from broker, lawyer, etc)
- risk of defaulting or nasty tenants trashing the place or not paying rent
Stocks
Pros
- easy to enter: you can start buying in fractions (even as low as $100)
- more “passive” – no managing tenants, fixing leaks etc
- regulated, so tends to be fairly stable
- you can leverage this too (but i dont recommend, scary stuff)
- more opportunities, such as options, trading, stop loss functions etc
Cons
- market fluctuations can cause price to swing up and down
Cryptocurrency and blockchain is a type of growth/tech stocks, so there’s lots of risk and volatility but potential at the same time.
The third kind: hybrid
You dont have to pick EITHER real estate or stocks – you can do both. It really depends on your preference. I understand both’s pros and cons and I currently am more into cryptocurrency for quick capital appreciations as well as dividend stocks for cashflow. That’s me, at 40 years of age today.
I will consider porting to a more long term and low fees approach of
- pure index (passive)
- index + bonds (passive)
- index + dividend stocks (passive with a little work for dividend stocks)
- index + dividend stocks + bonds (passive with a little work for dividend stocks)
The only thing about property management is that it tends to link with more work and expenses such as
- property manager if I want it to be more passive
- property agents / brokers
- bank interest fees and mortgage loans
If I want to go “off-grid”, a pure stock approach would be easier for me. But if want to play with leverage and grow net wealth actively, then real estate will be the way. Who knows, I may do both.
Dont let this topic of property-versus-stocks stop you from taking action. The real answer and issue is taking consistent action on it. Choose something that works for you, and go for it.