There is only so long that you can earn, and set your wealth aside. At some point, you grow too old to be a racehorse, and call it quits! Investing is a great way to shorten the duration you spend running the rat race, by making prudent investments which generate passive income, IF done right, and consistently, it is possible to become independently wealthy, well in advance before your stipulated retirement age.
Isn’t that ultimately what we all want?
This is a simple but dedicated series to help you achieve that goal, because we understand how risky and intimidating investing your hard-earned money can feel. In our last feature, we weighed the pros and cons between realty versus mutual funds investments hyperlink. Offering our readers another point of view, we will contemplate the efficacy of stock market investments. You can consult a Cube Wealth Coach or download the Cube Wealth App.
Taking Stock
As compared to realty, investing in stock market is far easier. They require cheaper investments. Apart from a Demat and trading account, there are no cumbersome documentations (unlike real estate paperwork which requires a lot of patience.) You don’t even have to get your hands dirty, delegate the job to a stock market broker who will fetch you a good deal, while you focus on other priorities. Finally, while real estate is tangible, stocks can be liquidated in no time.
On the downside, the stock market can give you an addictive euphoria, but it can sweep the carpet from under your feet, equally quickly. Stock markets are really volatile. Depending upon the market conditions, trades tend to fluctuate a lot. One moment, you might see your share having a rising like a shooting star, while on the other hand, it can crash like an asteroid, as quickly. Sandwiched in between a pandemic and a global recession, the present times have taught us that stocks aren’t a very stable investment. Neither have they been in other frequent crisis such as political instability, inflations, weather or land calamities, drought, and so on.
Real (Estate) Investments
The longevity of real estate investments, whether commercial or residential, last as long as the brick-and-mortar foundations they are built on. If you’re buying a residence, consider a gentrifying neighbourhood in not necessarily a posh, but at least a safe neighbourhood, so it fetches you excellent selling prices whenever you are ready to move. In the case of commercial property, the investment should be made in a centralized business district that has great footfall, seamless connectivity and good infrastructure.
Making the REIT choice
Real Estate Investment Trusts (REIT) make realty investments, working in the same way as mutual funds do. REITs are a pool bank that allows multiple investors to invest in income-producing properties. They deals with property finances, its management, and ultimately multiplication, in such a way that no one, in particular, has to manage and take care of the finance of the property. In fact, everybody earns dividends from the investment, making this a win-win situation for all.
REITs streamline a steady amount of income for its investors. However, in the case of capital appreciation, it is not much of a giver. Unlike a property investment that does not allow you to liquidate at any given point, REIT does the opposite. Therefore, by breaking one of the biggest barriers to real estate investment, REIT is definitely proving to be a gamechanger.
Types Of REITs
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Equity REIT
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Allows investors to achieve regular income from rentals.
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Mortgage REIT
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Earnings are generated through net interest margins by lending money to the realty owners.
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Hybrid REIT
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Amalgamation of the Equity and Mortgage REIT that uses both investment strategies.
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Publicly-Traded REIT
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Functions like the stock market, shares of such property are listed on the national securities exchange market. The trade takes place between the investors.
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Non-Publicly Traded REIT
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Not listed on the stock exchange market, therefore, enjoy lesser liquidity.
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Private Traded REIT
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Sold privately to institutional investors.
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Before opting for an REIT, you need to make sure that the company is registered under the Securities and Exchange Commission (SEC). With the help of the SEC tool, available online for free, you can ensure the authenticity both of the broker and the company. You can consult a Cube Wealth Coach or download the Cube Wealth App.
We hope this elaboration will help you choose your goose which lays the golden egg.
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FAQs
1. What are the tax implications of each investment type?
Ans. Both real estate and stocks have different tax treatment. Real estate can offer tax benefits like deductions on mortgage interest, while stocks may have capital gains tax implications.
2. How do I determine my risk tolerance when choosing between real estate and stocks?
Ans. Risk tolerance depends on your financial situation, time horizon, and personal preferences. Stocks generally involve higher short-term risks, while real estate offers a more stable, long-term approach.
3. What are the financing options for real estate investments?
Ans. Real estate can be financed through mortgages, allowing you to leverage your capital. Stocks are typically purchased with your own capital or borrowed funds in a brokerage account.
4. How do I diversify my investment portfolio when considering real estate and stocks?
Diversification can be achieved by combining both asset classes in your investment portfolio. This helps spread risk and can provide a more balanced approach to wealth creation.
Conclusion
Real Estate vs. Stock Market Investments - Finding the Right Option for You
The choice between real estate and stock market investments hinges on your financial goals, risk tolerance, and investment horizon. Both options have their own advantages and considerations.
1. Real Estate
It offers the potential for steady appreciation and rental income. It's suitable for investors with a longer investment horizon and a preference for tangible assets.
2. Stock Market
Stocks offer the potential for higher capital appreciation but come with greater short-term volatility. They are better suited for those with a higher risk tolerance and a longer investment horizon. You can consult a Cube Wealth Coach or download the Cube Wealth App.
Ultimately, the right choice may involve a combination of both asset classes to achieve diversification and balance in your investment portfolio. It's crucial to assess your financial goals and preferences, consult with a financial advisor, and carefully consider your risk tolerance when making your decision. By doing so, you can make an informed choice that aligns with your investment strategy and helps you achieve your financial objectives.
