There have been many arguments regarding investing in the stock market as against investing in real estate or placing your money in banks as deposits. Clearly each one has its advantages over the other. The answer to the question still lies on the investor’s objective. However, when considering long term investments, clearly stocks outperform any other investment vehicle based on historical figures.
The stock market and real estate can be considered the two major asset classes for growth investing. They both allow investors to participate in long term appreciation of values. Both investments provide investors with good returns over the long haul. On the other hand, bank deposits provide investors a medium for safe keeping of their assets. Bank deposit provides meager returns to their investors in exchange for the protection of their assets.
Investing in stocks and mutual funds has some clear advantages over real estate and bank deposits. With few exceptions, stocks and funds are extremely liquid and can be bought and sold in seconds. Bank deposits also provide investors with liquidity however the rate of return banks provide cannot be compared with stocks or even real estate. Meanwhile, real estate investments are the less liquid of all. In order to sell real estate fast, an investor might have to take a few losses compared with other investments wherein transactions can easily be done in an arms length.
Another clear advantage of investing in stocks is that the rate of return over the long run by stocks wins easily against any other investment. A new study by Jack Clark Francis, a finance and economics professor at Baruch College in New York City, and Yale's Roger G. Ibbotson compared the annual returns of real estate from 1978 to 2010 compared with those of 15 different "paper" investments, including stocks, bonds, commodities futures, mortgage securities and real estate investment trusts (REITs). Results showed that housing delivered a solid but unimpressive annualized return of 8.6%. Commercial
property did better at 9.5% but the S&P, however, delivered a crushing 12.91%. Meanwhile, bank products are left behind delivering only a compounded return of 2%.
Another advantage of investing in stocks is that it even offers positive cash flow and potential capital gains. Though an investor would still have to worry about the possibility that the company will cut its dividend, still the risk is certainly lower than the risk of a tenant failing to pay his rent. Compared to bank deposits, stocks still has an advantage over the long term given its growth potential and dividends.
Significant differences should be noted in the costs to buy, hold and sell stocks compared with real estate. Stocks costs relatively low to buy and sell and cost nothing to hold. On the other hand, real estate comes with high transaction costs. Realtor commissions, appraisal fees, title insurance and mortgage fees are required in real estate transactions. These costs makes real estate less attractive compared to stocks.
Investing in stocks is also a good way to beat inflation. Inflation is the general increase in the price of goods and services that leads to the decline of purchasing power of a currency. Investing in stocks gives a clear cut advantage to an investor aiming for long term capital growth as against investing in real estate or other investment instrument.
Finally, investments in stocks offer leverage without borrowing huge amounts of money. It’s not uncommon to find publicly traded growth companies that increase 30%, 40%, even 100% or more during a bull market. You can leverage further if you wish, with margin accounts or options, which are far less risky than a busted real estate deal or to allow your money to sleep in the bank while earning very low interests.
Keep in mind, though, that every investment has a risk associated with it. The only way to minimize risk is through careful planning and evaluation of every investment decision. Also, asking advice from expert market advisors can also provide an investor with knowledgeable insights in managing his investment portfolio.
The stock market and real estate can be considered the two major asset classes for growth investing. They both allow investors to participate in long term appreciation of values. Both investments provide investors with good returns over the long haul. On the other hand, bank deposits provide investors a medium for safe keeping of their assets. Bank deposit provides meager returns to their investors in exchange for the protection of their assets.
Investing in stocks and mutual funds has some clear advantages over real estate and bank deposits. With few exceptions, stocks and funds are extremely liquid and can be bought and sold in seconds. Bank deposits also provide investors with liquidity however the rate of return banks provide cannot be compared with stocks or even real estate. Meanwhile, real estate investments are the less liquid of all. In order to sell real estate fast, an investor might have to take a few losses compared with other investments wherein transactions can easily be done in an arms length.
Another clear advantage of investing in stocks is that the rate of return over the long run by stocks wins easily against any other investment. A new study by Jack Clark Francis, a finance and economics professor at Baruch College in New York City, and Yale's Roger G. Ibbotson compared the annual returns of real estate from 1978 to 2010 compared with those of 15 different "paper" investments, including stocks, bonds, commodities futures, mortgage securities and real estate investment trusts (REITs). Results showed that housing delivered a solid but unimpressive annualized return of 8.6%. Commercial
property did better at 9.5% but the S&P, however, delivered a crushing 12.91%. Meanwhile, bank products are left behind delivering only a compounded return of 2%.
Another advantage of investing in stocks is that it even offers positive cash flow and potential capital gains. Though an investor would still have to worry about the possibility that the company will cut its dividend, still the risk is certainly lower than the risk of a tenant failing to pay his rent. Compared to bank deposits, stocks still has an advantage over the long term given its growth potential and dividends.
Significant differences should be noted in the costs to buy, hold and sell stocks compared with real estate. Stocks costs relatively low to buy and sell and cost nothing to hold. On the other hand, real estate comes with high transaction costs. Realtor commissions, appraisal fees, title insurance and mortgage fees are required in real estate transactions. These costs makes real estate less attractive compared to stocks.
Investing in stocks is also a good way to beat inflation. Inflation is the general increase in the price of goods and services that leads to the decline of purchasing power of a currency. Investing in stocks gives a clear cut advantage to an investor aiming for long term capital growth as against investing in real estate or other investment instrument.
Finally, investments in stocks offer leverage without borrowing huge amounts of money. It’s not uncommon to find publicly traded growth companies that increase 30%, 40%, even 100% or more during a bull market. You can leverage further if you wish, with margin accounts or options, which are far less risky than a busted real estate deal or to allow your money to sleep in the bank while earning very low interests.
Keep in mind, though, that every investment has a risk associated with it. The only way to minimize risk is through careful planning and evaluation of every investment decision. Also, asking advice from expert market advisors can also provide an investor with knowledgeable insights in managing his investment portfolio.
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