Investing can take on many shapes and forms. Still, two of the most common and popular methods involve real estate ventures and stock market trades. Each is associated with its own set of benefits and drawbacks. This is arguably one of the reasons why many investors tend to dabble in both. Let us take a brief look at some of the differences between the two as well as the unique advantages that each has to offer.
Real Estate Investing
Land and property investments have existed in one for or another for centuries. The main principle is simple. The investor purchases a share of a property or the entire parcel. He or she then waits for its value to increase over time. They will then either sell this holding for a higher price or pass it across to another as a tangible asset.
It should therefore be clear that real estate investments tend to be long-term holdings by their very nature. Owners are looking for yields defined in years or decades as opposed to days or months. Although there are times when a property can be “flipped” for a sizeable profit, this is rarely the case.
Another interesting aspect of real estate investments is these are often considered to be safe-haven options when compared to the relative short-term volatility of the open market. For example, recent news reports have shown that house prices in the United States are rising extremely fast. This could signal the next major boom and some investors will naturally be keen to capitalise on such upward momentum.
Finally, real estate investing offers a more predictable source of income. This is particularly relevant in terms of commercial properties. Owners generally accrue wealth through rental payments and other subsidies. However, we also need to keep in mind that costs such as maintenance and upkeep can eat into these profits. Stock investments are not associated with these extraneous fees.
Stock Market Investments
Investing in the stock market is another popular alternative and due to the short-term nature of any generated profits, this method tends to make news headlines more often. Anyone looking to supplement their income through such ventures will therefore become involved in assets such as shares, commodities, CFDs or bonds. Large online portals such as CMC Markets offer a wealth of opportunities and trades are able to take place within seconds.
As opposed to real estate, the relative short-term nature of the stock markets has always been associated with a greater amount of risk. It is not uncommon for an investor to lose large sums of money if he or she fails to make the correct decision. However, this liquidity is just as able to generate substantial amounts of revenue. A growing number of independent investors are now utilising this method as an additional source of income.
Unlike real estate positions, there are generally no prior qualifications required to trade stocks. In other words, licensing or other official certifications are not necessary. This enables virtually anyone to trade within a short period of time.
Additionally, most stock trades are associated with a much lower initial investment level. This is critical, as ten per cent of one million pounds could be much harder to come by than a share in a blue-chip firm such as Apple. Thanks to less capital outlay, the stock markets can be accessed by those even with limited income. This is obviously quite appealing for anyone who may be looking to build a “nest egg” for the future.
Combining the Two
We can see that there are benefits and drawbacks to each approach. This is why many traders combine both in order to develop a well-balanced portfolio. Considering that some analysts are predicting an increasing amount of open-market volatility in the months ahead, it only stands to reason that diversification could be a wise option. Still, either of these methods can prove to be extremely worthwhile if approached with insight and clarity. Whether looking for long-term yields or short-term profits, there is indeed an opportunity for everyone.