When it comes to investing for long-term wealth creation, most financial planners recommend investing in real estate or buying stocks. In truth, both investment vehicles are excellent for long-term investments.
That being said, it’s essential to understand the risks and benefits associated with both investment vehicles. In the end, the choice is up to your financial citation and comfortability with risk to choose which one is right for you!
As its name suggests, investing in property means buying property to sell them at a higher price or using them to generate passive income. Property investment generally has a lower risk factor, mainly because of its tangible nature.
Provided that you chose to buy property on an up and coming area and make enough money on rent, your investments will start generating returns and can even pay for themselves in the long run. Repayments for your principal mortgage will also grant equity over time, which you can use to invest in more properties and expand your portfolio.
The main disadvantage of property investment is that it requires a large amount of capital and can take years to provide adequate returns. There is also the matter of working as a property manager, which can tax you excessively if you intend to do it yourself.
Between maintenance costs and the pressure to keep your properties filled with paying tenants, being a property manager is hard work. It’s also worthwhile to note that physical properties are not counted as liquid assets. Non-liquidity means that if you need cash, you can’t just sell part of the house; you’ll need to sell everything—and quickly too!
Investing in Stocks
Investing in stocks means participating in the trade of said stocks, as well as bonds and exchange-traded funds in the Australian Securities Exchange, typically through a broker or online trading platform.
Stocks are a piece of security that companies sell in the stock exchange to raise funds for various initiatives, such as a new product line, invest in growth, expand their operations, or pay off debt. Owning stocks technically makes you a part-owner of the company, making you eligible for dividends and other benefits.
Most investors (such as yourself) make money by buying stocks at a low price and selling them off when they rise. Investors looking for long-term growth will hold on to stocks for more than a year, often up to a decade. In contrast, investors looking to make a quick profit will feverishly monitor the rise and fall of stock market values and sell their stocks once they feel that the value has hit the ceiling.
Investing in stocks involves a higher risk because fluctuations in the stock market occur daily. Stocks can rise or fall depending on anything, even something as mundane as a controversial tweet that could affect investors’ confidence about a company’s leadership. This loss of trust can prod investors to sell their stock, negatively impacting its demand and causing it to devalue!
That being said, stocks are liquid assets, making it easier for you to regain your investment if you need it for anything other than stock trading.
Property vs. Stocks: Which One is Better?
It’s difficult to determine which investment vehicle has performed better historically because both have had their ups and downs. The danger with comparing the two in terms of long-term value is that you can easily pick a specific time frame wherein one has performed better than the other to support your worldview!
Provided that you’ve invested wisely, both investment vehicles have the potential to generate high returns in the long run. It all boils down to how comfortable you are with risk, and whether you prefer working with tangible or liquid assets.
As mentioned above, both investment vehicles have their pros and cons. It all depends on your comfort levels in dealing with risk. If in doubt, consult a financial planner with the necessary experience and in-depth industry knowledge to guide you in segregating your wealth and investments.
If you’re looking for a financial planner to give you money advice about where to place investments, then we’re the best one to suit your needs! Jubilee Financial Services specialises in developing strategies for wealth creation. We also handle budgeting and debt management, superannuation planning, personal insurance, estate planning, retirement planning, and aged care. Contact us today to learn more!