There is a very longstanding debate over whether stocks or real estate offer the better return on investment. While stocks and real estate both have their advantages, stocks tend to provide higher returns in the long term. However, since stocks carry more risk than real estate, stocks are not an appropriate investment for everyone.
Stocks, also known as equity or shares, represent ownership in a corporation. When you buy stocks through an investment broker such as Charles Schwab Corp., you purchase either preferred stocks or common stocks. Preferred stocks pay regular dividends but lack voting rights while common stocks come with voting rights and no guaranteed dividend payments. Companies typically issue stock when they need to generate capital for expansion projects such as building new factories or purchasing new equipment.
A common measure of stocks returns is the average annual return on investment (ROI). The average annual ROI for stocks over the past century or so has been around 7%. Once you invest, your stocks appreciate through the effects of inflation and dividend payments. However, stocks are not guaranteed to increase in value, and stocks do carry some risk of loss. Stocks tend to provide relatively consistent returns on investment though losses can be significant if a stock plummets suddenly; this volatility results in greater opportunities for wealth but also greater chances of losing money overall.
Real estate refers to land and anything permanently attached like buildings or other structures on that land. If you own real estate property, then each month you receive rent from the tenant who occupies that property. The number of properties that you own determines your level of exposure to taxes, maintenance costs, etc.
The average ROI for stocks is about 7%. Real estate has averaged around 4.5% over the past century or so. Stocks can often provide higher returns but real estate offers greater stability since real estate prices only go up rather than down unlike stocks which can lose value quickly. However, stocks allow owners many more investment options whereas an individual with an apartment building may have limited investment opportunities if he cannot take out a second mortgage on his property to invest in something else. Thus stocks are riskier investments but usually provide higher returns overall while real estate is generally less risky but also provides lower returns than stocks.
When stocks are appropriate investments for you depends on your tolerance for risk. You should also consider your future financial goals when deciding which stocks or real estate to invest in.
