Becoming financially free is one of the top goals of many people. To achieve this, many have resorted to having multiple sources of income and trying to save up as much as possible. While this is good, I believe the best way to go about becoming financially free is by investing. And not just investing but doing so in the right place.
When investment is being talked about, the two options that offer good returns that come to mind are stocks and real estate. However, not everyone has the luxury of investing in both. So, the dilemma is now about making the choice of which to go for.
If you are in this situation, you need not worry again. In this post, I examined both options with the hope that they will help you decide where to invest your money.
Should you invest your money in stock or real estate?
Real estate and stocks are great investment choices, as I pointed out above. However, there are some preliminary things for you to understand before you make a choice. Your choice depends on how much you have at hand, your risk tolerance level, your investment style, and the goal you wish to attain.
Investing In real estate
To invest in real estate, you must have saved a lot of money, as it requires huge capital to start.
The benefits of investing in real estate are passive income from rent and a hedge against inflation. This is possible since you will be acquiring a tangible property. You will also be able to leverage your property as securities for a loan, and sometimes, you might get some tax advantages.
The disadvantages, however, are that investing requires high transaction costs. Before you can invest, you must have saved up a lot of money, and as we all know, money’s value can depreciate. Also, it is illiquid and requires more work, especially for maintenance. Lastly, you might not get to experience as much appreciation for your property as you had expected.
Investing in Stocks
Investing in a complicated market like stocks is unlike real estate, which requires a substantial sum. And this is one of the reasons people feel comfortable choosing stocks.
The benefits of investing in stocks are that it is highly liquid, and you can easily diversify. Also, it requires low transaction fees, and it is easy to add the returns to tax-advantaged retirement accounts.
The disadvantages, however, are that stocks are very volatile, and selling them can trigger huge taxes. Also, some stocks may not appreciate, as they may move downwards. Furthermore, investors may succumb to being emotionally driven when investing in them due to their volatility.
The decision to invest in either of the two options discussed above depends on your financial capacity and personal desire. My advice is to carefully examine the benefits and disadvantages and determine which best suits you. Knowing what works for you will help you make the right decision in diversifying your investment portfolio.
Conversely, if you have enough money, you can try out both or as many other investments as possible. This will help you spread your risks and guard against losing all your money should a particular investment option fail.