To invest or not to invest, that used to be the question. The real dilemma now for many who are looking to make an investment is where they should go; the stock market or the real estate market? Both offer good prospects of making profits, and both markets fluctuate frequently enough to give every investor the jitters. Both have a history of great soaring profits, as well as cases of market busts.  To help you better understand the investment risks and benefits for either of the markets, we hope you will read the following.

It can be tempting to invest in the stock market; after all there are so many success stories of people becoming millionaires based on their investments. It is also a market that has been long glamorized on the silver screen as being a ruthless market where the smartest and the fasted survive and make it big. At the same time, especially in recent times, real estate investors too have become part of the popular cultures; just think of Donald Trump! But even with out him, real estate developers frequent the news for doing something grand or the others, such as buying out large media companies such as the Tribune in Chicago in spring 2007.

Taking Stock of the Situation

Forbes recently agreed that conventional wisdom dictates real estate as a better option does hold true, especially in the short term. But that the stock market should by no means be undermined. After all, sale prices for real estate in the United States increased as much as 56% in about five years from early 1999 while the S&P 500 index saw a drop of 6% in that same time frame. However,  keep in mind that while in the last twenty five years the prices of real estate saw an increase of 247%, the S&P 500 Index in that same time frame actually soared by as much as 1,000%

Even CNN Money confers this view. In fact, based on a study conducted of a time period between 1978 to 2004, it was revealed that the general returns per year on stock market stayed at about 13.4% while the housing real estate market’s hovered around 8.6%. It must be noted that commercial real estate’s was a bit higher at about 9.5%. In fact, a business professor at Yale even contests that the two good moments in the housing market came once after World War II and once in the last six or seven years. And even in that he goes on to claim that real estate market was in a bubble during those recent years. So the stocks seem to have outperformed the real estate market in this perspective.

One interesting advantage that stocks have over houses, for example, is that stocks are liquid assets and can often be sold for a very little fee or costs. And it can be done so immediately.

Buying a Sound Investment

Now all this might make you feel that hands-down stock market is a winner over real estate. But don’t jump the ship yet. Real estate is an ever emerging field for investment all over the world. For example, just in the last 20 years alone property values in the UK have increased at an astonishing rate of hundreds of percent! And the United States too has experienced a boom in the real estate market, as has Europe.

Now, on any given year market place history will show that the home market averages a maximum drop in price only at about 5%. Where as if you check the book on stock market, you will find that a real stock price fall could be around 20%!  Also, most experts will agree that generally real estate, especially homes, definitely offers more leverage than stocks ever can.

Also, consider this: if the prices on your stocks fall, and if in case you bought those stocks on a margin, then you will have to pay whatever the losses are by various means, including liquidating your holdings. But when you talk about real estate, should the price of a house decrease, there is no way that your mortgage lender can demand more money to make up for the drop in price. You will only be responsible to paying your monthly mortgage.

Who likes to pay high taxes? Now if you love your tax returns and tax deductibles, then real estate is definitely your thing. With residential real estate, the interest on your mortgage as well as your property tax is tax deductibles. And if you ever sell your property, you can make a cool profit of up to $500,000 and not have to pay taxes for it. If your investment is on a commercial property, it too has a string of commercial property breaks attached to it. Don’t be surprised that the tax breaks on the stock market are nothing close to this.

The volatility factor in real estate is also much safer than in stock market. Because real estate market is very different from stock market, in the sense that they are not bought and sold at the rate of frequency as stocks, the chances of a drastic soar or a drastic plunge is somewhat unrealistic. In the stock market though, people have lost everything they had in a single day’s worth of trading.

And The Winner Is

Now many experts will agree that over all, stocks do tend to seem like the winner because of its ability to easily become diverse and its general performance. However, the flip side is that a home has great leverage and you can easily start earning equity on it. Still, it is perhaps faster to climb up a financial situation through stocks than it is through real estate. Stock market is also a lot more accessible than real estate is, especially to new investors. And whatever choice you do make, make sure you have spent enough time researching it. After all, the greatest asset can be a wise enthusiasm.

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