Should you invest in real estate or the stock market? The short answer is, "It depends." Real estate can be one of the most lucrative investments you can make — if you know how to do it.

"Investing in real estate or stocks is a personal choice and depends on an investor's pocketbook, risk tolerance, goals, and investment style." - Investopedia

The Swinging Stock Market

Stocks are easy to buy and sell and require minimal investment. In addition, investors can stay ahead of inflation, and stocks' value usually grows with the economy. But on the flip side, the stock market can experience huge swings, causing emotional distress. Despite the amount of research an investor or advisor does, a stock investment can be risky business.

Many people still choose to invest in stocks because they can do it with a minimal commitment, they can easily get their money when they need it (liquidity), and they can spread their investment across many different opportunities.

Playing the Long Game With Real Estate

Although only 15% of Americans invest in real estate, history reveals that, over a 16-year period, it delivered returns of close to 11% annually, compared to about 5% for the S&P 500 Index's return. Following the Great Recession, many investors lost confidence in the stock market and participation dropped from about two-thirds to 50%.

Investors often prefer real estate because of the huge earning potential, along with the fact that it is a less volatile — and more tangible — investment. In other words, investors can see and directly manage the properties they buy and sell.

Real estate investors also have a wide range of options. Although successful investing usually requires a larger financial commitment than stock purchase, you can start with as little as $500 and grow from there. Investing in real estate gives people more of a sense of control and involvement.

"The choice between investing in real estate or stocks is like choosing between eating a chocolate cake or a hot fudge sundae. Both are good provided that you don’t go overboard." Financial Samurai

The Discipline of Investing

Whether you're investing in real estate or stocks, neither option takes the hard work out of investing. Whichever way you go, you must do the following three things:

  • Plan and make decisions based on your risk tolerance and stage of life. For example, tying up money in the stock market as you get close to retirement can be highly risky.
  • Diversify, to protect yourself against huge market swings.
  • Research, so you know as much as possible about where your money is going.

How to Research Before Investing

Stock research can be highly complex, which is why some individual investors rely on investment advisors to make recommendations. Successful self-managed investors conduct exhaustive research across multiple sources. If you want to be actively involved in managing your money, you need to stay on top of trends and make constant decisions about buying and selling. Selling stock can also result in capital gains tax.

Real estate investing requires up-front research and planning too. A recent survey showed that 48% of participants would be more eager to invest in real estate if the right technology were available to make the process easier. That number jumps to 63% among millennials. PropStream created technology which enables investors to conduct comprehensive research on individual properties, neighborhoods, trends, and renovation costs.

If you're thinking of investing in real estate or stocks over the next year, be sure to get ahead of trends. Here are some highlights for the real estate outlook in 2020, which you can compare with stock predictions.

So, is real estate a better investment? In summary, no one type of investment is "better," but experts agree that for those investors who want to control their own investment destiny, real estate can be a viable long-term option, especially if you have the right data to back-up your decision-making.

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