If you have money to invest in some way, congrats!
That's half the battle.
Now, for the other half — deciding what would be best to do with it.
This article will cover two very different and very popular alternative investment vehicles that many folks go ‘round and ‘round considering: real estate and stocks.
Real Estate vs. Stocks: Comparing the Core Elements
How and where you choose to invest is very personal, as it’s all about what makes you feel comfortable and aligns with your temperament, goals, risk tolerance, and so on.
So, where we can help you most is making sure you know all the ins and outs of stocks vs. real estate investing so you can make the right decision for yourself.
With that said, let’s get into the differences and similarities now!
Expected Returns
The rate at which real estate appreciates varies widely year to year and based on location, but very generally speaking it hovers around 3.5% a year.
In addition to appreciation, you can also make regular income from a real estate investment if you rent it out long term (to leased renters), short term (via a platform like Airbnb), as an event space, and so on.
Stocks also appreciate — often at a higher rate compared to real estate. From 2012 through 2021, that rate was 14.8% annually. Remember, that’s an average. For example, during that time, some years saw growth of 2% or less and some saw a drop in value.
Stocks can also pay dividends, which are payments to shareholders in shares or cash. Something to note is that stocks which pay dividends may appreciate more slowly than those that don’t. On the upside, you can usually expect something from dividend payouts — even if the market is down.
Over a long time, it looks like stock returns may be better than real estate returns. However, the stock market may just feel too uncomfortable for those who fear volatility, and your comfort is definitely worth considering.
Of course, there’s no predicting which asset type will generate better returns — there never is no matter what asset we’re talking about.
Wherever you invest, avoid getting underwater if things don’t go your way by never putting in more than you can afford to lose.
Upfront and Ongoing Costs
If the roller coaster from 2020 to 2022 showed us anything, it’s that the housing market certainly ebbs and flows. But, generally speaking, real estate requires a decent investment up front — in the hundreds of thousands of dollars, usually — whether you’re borrowing the cash from a bank or other lender.
In addition, there are other expenses associated with real estate. When you own a property, there’s always upkeep and usually ongoing insurance and property tax payments. So if you’re relying on appreciation and/or passive income from your rental property, do your research to make sure that’s not all outweighed by costs.
With stocks, you can start investing with much less money — just thousands or even a few hundred bucks is enough.
And, there are no ongoing costs. If you choose not to pour any more money into a stock, it will still appreciate (though more slowly) and/or pay dividends without you spending another dime on ownership.
That said, it’s harder to take advantage of a really great stock deal if you just don’t have the cash. Getting a loan for a property is overall pretty easy, as our financial system in the U.S. is readily set up for this. If you have a good credit score and low interest rates are in your favor, getting a real estate loan could be totally worth it to snap up a high-return deal.
Maintenance
As we touched on in the last point, part of the ongoing costs with physical real estate is because of the maintenance.
Buying investment property may be attainable for you, but the actual work of being a landlord — or even just managing a company to take care of your property — requires another skillset and more of your time.
Real estate is one of the few asset classes where you can put true sweat equity into your investment, so if you’re into that prospect it’s a great area to explore.
However, if maintenance and physical improvements really aren’t on your to-do list when it comes to investing, stocks are going to be a better option for you.
With stocks, you can pretty much “set it and forget it” and rely on time to do the work of increasing value for you.
Of course, you shouldn’t totally walk away from your portfolio and neglect to monitor it to make sure your stocks (and other assets) are meeting your goals. Stay tuned, because later we'll introduce you to all-in-one personal balance sheet software that makes this job a piece of cake.
Liquidity
Real estate is typically not as liquid as stock.
That means that turning your real estate investment into cash may take a good amount of time — because someone has to buy it from you in order to generate that cash you’re looking for.
With stocks, there are numerous platforms that make it easy to sell your stocks and cash out pretty much in seconds. While this also depends on people being interested in your stocks, with a much lower barrier to entry and affordable pricing, it’s still usually a faster process than property sales.
Research Required
The property value of real estate is so subjective.
Things like the neighborhood, tax rates, crime reports, weather, average rents, and of course cost should all play into your decision of whether a piece of property is a good investment for you.
And while we’re not saying you shouldn’t research your stocks, there are typically fewer factors that you need to look into to feel secure about your investment. Mostly you want to look at the company’s and the stock’s performance track record, which there is usually plenty of info on online.
That said, there’s still just something about the real estate process that feels more familiar than buying stocks for many. For example, people who didn’t grow up being taught financial literacy may find investing in the stock market confusing. However, almost all of us have seen some part of the home buying process.
In addition, there’s something about owning a physical asset that’s just comforting.
This is yet another area where the asset you choose is going to depend so much on your goals and preferences.
Inflation Hedging
Today, when inflation is a real concern, investing in an inflation hedge could be really valuable.
Real estate investments are a known inflation hedge. This is because the value of physical properties, and rents, tends to increase as inflation goes up.
On the other hand, stocks get more volatile and unpredictable with inflation. Growth stocks in particular, which represent ownership in fast-growing companies, may stagnate — as part of the inflation equation is a slowdown in consumer spending.
Learn more about the best investments to protect against inflation.
How to Get Started with Traditional Real Estate Investing
Still the most common method for getting into real estate investing today is to research and purchase what you think will be an income-producing property within your budget. Single-family homes, apartment buildings, and even commercial real estate are all options.
Aside from a traditional lender, there are other ways to get the funds you need — private money loans, seller financing, and more.
Once purchased, renting the property either long term or short term is where the rental income element comes in. Price carefully to balance out closing costs, your monthly mortgage payments, maintenance, taxes, etc. You should also account for the cost of your time spent doing property management duties — or the cost of hiring someone else to do it.
Alternative: Invest in Real Estate Trusts
Not attached to the idea of homeownership — or don’t have access to hundreds of thousands of dollars?
Invest in a real estate investment trust (REIT) instead!
REITs are trusts that use investor money to purchase income-producing real estate. Profits are paid back to investors in the form of dividends — just like dividend stocks. Since REITs are traded much like stocks are, they also have more liquidity than physical real estate.
Another option are investments in real estate mutual funds and exchange-traded funds (ETFs), which invest in REITs.
Learn more about becoming a digital “landlord” instead of a real-life one in our guide Yieldstreet vs. Fundrise: Add Real Estate to Your Portfolio.
How to Invest in The Stock Market
Getting started with stocks largely revolves around deciding your desired level of involvement.
For the DIY type who wants to choose your stocks yourself, open an online brokerage account. For more details on what that process looks like, here’s a guide from NerdWallet.
If you want more guidance in your investment choices, sign up with a robo-advisor (less expensive) or hands-on investment manager (more expensive). Personally, we think this is where all first-time investors should start before considering the DIY path.
Whether you go robot or human, usually you’ll just have to answer some questions about your investment goals, risk tolerance, assets, etc. From there, most platforms will typically set up a portfolio for you, and then either you or your advisor will manage it depending on the level of service you’re paying for.
Compared to physical real estate investing, setting up a brokerage account or working with a financial advisor to get started with stocks is typically more affordable. However, you should still shop around — some white glove advisors require $100K or more in assets to get started.
How to Track Your Holdings, No Matter What You Choose
Whether you choose to invest in real estate, stocks, REITs, or some combo of all of the above — there’s one final thing you have to do to become a successful investor.
You have to manage all your assets in a way that aligns with your goals.
And yeah, it can kinda be a lot when you’re aiming for robust portfolio diversification.
Make the burden a little lighter with Kubera.
Kubera is personal balance sheet software for the modern, high-net-worth individual.
How does it work?
All you have to do is sign up then start logging your assets — from real estate to stocks to REITs, collectibles, credit card accounts, crypto, vehicles, banks accounts, retirement accounts, savings accounts, and more — using our delightful, spreadsheet-like interface.
We integrate with thousands of global financial institutions, so most of your account-based assets will update in real-time with Kubera. For those assets without accounts — think antiques and other physical items — it’s easy to update their value using Kubera’s intuitive dashboard.
And for everything else, there are our stock market tickers, cryptocurrency tickers, and integrations with asset value tools (Zillow, EstiBot, etc.).
With Kubera, you always know what’s going on inside your portfolio, empowering you to make wise decisions when it comes to new investments.
With your many assets tracking, it’s time to layer on information about how they’re performing against the money you put into them.
Enter Kubera’s IRR for investments feature.
Just make sure the cash flow, purchase price, and current valuation of each holding is up to date. Kubera will add in its holding time and voila — an automatic calculation of the internal rate of return (IRR is like ROI but accounts for holding time and value changes).
IRR is displayed in your preferred currency and benchmarked against popular indices and tickers (the S&P 500, etc.), helping you more deeply understand your investments’ performance in the wider scheme of things.
Finally, our recap feature is the cherry on top of the many features Kubera has to provide deep investment insight.
Just visit the recap screen to see a breakdown of asset and portfolio performance on any given day. Or, compare year over year.
With this information, you’ll be able to see how your assets are helping you reach your goals — or where things need to be swapped out to power up your progress.
Visit our pricing section to sign up for your Kubera subscription, then get to work tracking your entire portfolio, IRR, and performance via desktop, iOS, and Android.
Working with a financial advisor on your real estate, stock, and other investments? You don’t have to stop with Kubera! Just share our white-label solution with them. Once they include it as part of their suite of tools, you’ll get to enjoy even more complete portfolio management.
