Stock market versus real estate
A common question that comes up is the stock market yields versus the real estate market yields. Honestly they have similar yields and both increase in value over time. You just need to invest and not take it out during a dip. They will both fluctuate up and down. Time invested is the most important factor.
Similarities are:
Yields
Go up over time
Fluctuating
You could lose if you pick wrong
You will be taxed in some way
Both outpace inflation
Better to be in sooner for longer
Ride out dips
Could loose investment if value goes to $0
Differences are the following:
Stocks:
More fluid (quick to get cash back)
Taxed as income and as gains each year
Many different types
Many different ways of making income (ETFs, options, individual stocks, mutual funds, bonds, mixed securities, commodities, REITs, etc)
Real estate:
Less fluid (takes time to sell)
Taxed on value and when sold
Many different types (rentals, vacation rentals, apartment buildings, commercial property, etc.)
Can shift assets to others at lower taxation with inheritance
Can exchange for more expensive property and avoid taxes until you sell
Arguments that I have seen for one over the other:
1. Real estate is better because you are taxed less. Not true. You can write off depreciation but when the property is sold you are taxed. Uncle Sam always has his hand in your pocket.
2. Real estate protects you from inflation. Yes but so can many things. Real estate should go up when inflation rises and it does but so can commodities and the stock market.
3. They are both too risky. They do have risks but so does going to work in the morning.
4. The stock market is gambling. Yes it is. Just make sure you have better odds than the casino. Diversify! If you have some everywhere, if one segment is losing value others should be rising.
5. I only do real estate because it is a tangible asset. Great I am glad you are comfortable with that but you may want to not be so closed minded. What happens if your vacation rental area in Mexico is taken over by the cartel and no one vacations there now? Boom, you still have risk. It happened, look it up. That is just one of many examples.
6. Real estate has better yields. No, they are similar. You can have as low as no yield to more than 100%. Sometimes even 1000%. If you got into Amazon or Facebook early on the cheap you would have an amazing yield. If you purchased a beach house for 200k back in the day it could now be 1 million.
7. Real estate does not crash like the stock market. Do you not know about 2009? It totally did and can.
8. Bonds are safe. They usually don’t move much but also do go down at times. They also don’t have a great yield. I would rather be in a mutual fund such as a balanced fund.
9. Cash in my walls is safe or buying gold. Not if you get robbed and it was not insured.
10. My bank is the only safe place. Sure you have the government backing 250k in the bank but is it safe to run out of money and be homeless after you stop working? The bank in a cash prison.
Bottom line, a mix of both is probably best. For more click here.
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