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  • May

Investing in Stock Market vs Real Estate

The differences of investing in real estate vs stocks and which one might make sense for you.


A man thinking of whether to invest in stock market vs stocks

There are some major differences between investing in the stock market vs real estate. It's best if you can do both as it diversifies your portfolio, but what if you're just starting out? Which one makes more sense? Here are a few things to consider:


1. Your tolerance of volatility

Volatility is a tough pill to swallow. To see your portfolio go from $50K to $30K is difficult to see, especially if you just invested right before a downturn. If that happens, are you okay with seeing a negative amount in your account for some time? If you aren't able to sleep at night knowing that you lost money in your account, investing in the stock market is probably not for you. Real estate may be a better choice as it's not as volatile and has pretty consistent returns. However, longer term, stocks tend to outperform real estate. Again, this is only if you can handle volatility. If you can't wait that long for the market to turn around, my other recommendation would be to check out these investment strategies for the risk averse.


2. Access to your money/earnings

While everyone should only invest what they can afford to not touch, an emergency might pop up where you need to take money out of your investments. If you need quicker access to your funds, stocks are much easier to cash out on compared to real estate, especially when you invest in physical property. Taking money out of the stock market may take up to 1 week to clear to your bank account, but for real estate, it may take up to 2-3 months for the whole process to finish. Invest in stocks if you feel you may need access to a large sum of cash in the next 2-3 years. If you're unsure of how to invest in the stock market, make sure to check out my post on how to start investing in stocks.


3. Tax implications

If you're looking for tax incentives, investment property is much better at providing tax incentives than stocks. When you purchase investment property, the rental income you get is taxable. However, you can also deduct maintenance costs & repairs, mortgage interest, property taxes and depreciation from the rental income to reduce the amount of taxes that you owe. When it comes time to sell, the investment property is treated like capital gains tax. You can read more about the pros and cons of purchasing investment property here. There really are no tax benefits for stocks, unless you count tax loss harvesting (more on this in a separate post). Otherwise, you will also be taxed on capital gains once you sell the individual stock.


4. Amount of effort involved

It's impossible to put in zero effort into generating wealth, however, there are strategies that are more hands off compared to others. When it comes to stocks for example, it's easy to be hands off. Buy VOO, QQQ and other well-known ETFs and don't log back into your portfolio until a year or two from now. Real estate is different story. You need to do research upfront to determine if the property is worth what they're asking for, the location of the property and whether then realtor is trustworthy. It doesn't stop there. If you decide to take landlord duties as well, you may run into situations where you have to call up repairmen to fix something, taking additional time out of your day. Keep that in mind when you think about how "passive" you want passive income to be.


Unsure of whether investing in the stock market or real estate is right for you? Schedule a 1 HR financial coaching session, where we will discuss your financial goals and develop a personalized plan to achieve them!



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