The recent housing market crash has meant that investors are much more cautious about investing in both property and stocks, but both forms of investment have advantages and drawbacks. If you’d like to make your savings work harder then take a look at the following information to discover whether stocks or property is the right investment choice for you.
Investors often prefer to buy property as opposed to stocks because a property is a tangible thing. There are many different types of property to purchase including residential homes and business premises. One way to make money with property is through ‘flipping’, whereby a premises is purchased, renovated or redecorated and sold on quickly. Or properties can be rented out to generate a regular income rather than a lump sum.
Investing in property can have many benefits including tax breaks and depreciation and in the majority of cases a property will increase in value over time.
In these tough economic times most lenders require larger deposits and will not lend in the same volumes that they would before the collapse. This means that without a sizeable chunk of money to invest initially, it may be extremely difficult to secure a mortgage. In addition, buying and selling homes incurs lots of other expenses such as stamp duty and estate agent’s fees which need to be taken into account.
Stocks are often considered a more volatile investment than property but statistically they provide a better return. When you buy stocks you’re purchasing a percentage of ownership of the company you buy from. In challenging times, the earnings of the company may drop which means the value of your stocks can also drop. If opting to invest in stocks it’s usually more effective to play the long game and build up the net worth of your stocks over time.
Stocks are liquid which means they’re relatively easy and quick to sell. They’re also fairly flexible so for instance they can be kept tax free in a retirement account until the cash is withdrawn. Although there’s a slightly greater risk of making a huge loss with stocks than with property, companies can grow exponentially in a very short space of time which could net a huge return.
Stocks are volatile and can go drastically up and down in value so although there’s a lot of money to be made, there’s lots to be lost too. In addition, if an investor has to declare bankruptcy the stocks they own will be dissolved, so it’s essential to take this into account when investing.
In terms of earning potential, stocks take the advantage over property, but real estate is less risky and presents better tax advantages. One compromise is to invest in both to give yourself the best chance of making a significant profit depending on the amount of money you have to invest. Remember, both types of financial investments can be risky so make sure you’ve thoroughly assessed your financial situation before making an investment.
- License: Royalty Free or iStock source: http://www.sxc.hu
Russell Jackson has been working in the finance industry for over a decade. He is currently employed by an independent property investment advisory, Aspen Woolf, a firm which is based in the UK and has helped hundreds of clients choose the right investment opportunity for their circumstances.