Real Estate Vs Stocks – the Better Investment Alternative

Real estate or stocks, where are you better off? This is probably one of the hottest issues that have confronted a lot of stakeholders amid the recent debacles that hit major economies. In fact, there is now an emerging trend to veer away from stocks amid the recent release of a report which indicates that the estimate 10 year return based on US equities index is almost zilch. The logical follow-up question is – if stocks won’t work, what will?

The issues involved have been extensively assessed and seriously studied by stakeholders and in the end, it left them with more questions than answers. But many people agree on one thing – either you go for stocks investment or put your funds in some other investment instruments altogether. People are ignoring the possibility of establishing a balance among potential investment options. For those belonging to the working class, this other investment instruments include real estate. However, for entrepreneurs, it will always be business, regardless of the prevailing business climate.

This either-or approach in assessing our options for income generation indicates a one-track perception of real estate. You have to understand that when we look at real estate as an investment alternative, we are actually looking at either the physical investment on a property and REITs, which is basically a security.

But then, the bigger issues remains unanswered – would we have been better off investing in stocks or real estate?

Going by the performance of the stock market based on the most recent market report that was released, stock investors were not generally lucky. If we look at the 20-year time frame and discounting the bias of selecting a random 10-year window leading to the market bottom as end date, estimates set the earnings of stock investors at a low 1.87% annually. This paltry earning is directly attributed to the predominance of emotional investing and the high incidence of buying when stock prices are high and selling when prices are down.

Estate investors are also not doing well, lately, albeit not as worse as stock investors. In a related census of property managers and owners, less than half of the respondents reported profit from their investments. About 16% of the respondents broke even while 27% reported to have incurred losses of varying amounts from their respective real estate investments. The results of the study showed that more than half of the respondents ended on the negative range in their investments. What is significant about this study is that it was conducted before the onset of the sub-prime crisis. With the major fallouts in real estate markets in the past couple of years, it is safe to assume that the overall prospects in the real estate market may have gone from bad to worse.

With this grim assessment, are we ready to declare that neither option presents good earning potential? It is not wise for us to make our judgment based on a snapshot of one particular instance in the real estate market. You have to look at the bigger picture and see how things stand on the longer term.

There is a general consensus among stockholders to give more preference to real estate over stocks. When things are down, most investors believe that they are better off holding on to tangible assets. Though the value of the real estate properties are market dictated, between the two, it presents a better prospect as proven by past experiences. What is needed right now is for investors to dig deep in their “trenches” and wait it out until the financial storm finally blows over. At the end of the day, sound management of your finances will ultimately determine your overall performance regardless of the economic condition.

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