Real estate or stocks? Most people often get confused about which investment option is best for wealth creation. The stock market vs real estate debate is something that has long been here and never seems to end. Both have created fortunes for people, and both carry their own risks and advantages. Both also require patience and planning for investment. If you are also confused about which one you should choose for wealth creation, you are at the right place. Keep reading ahead, as we will be deep diving into both the investment options, so that you can decide what fits your investment goals and risk tolerance level.
Understanding The Basics
The Stock Market is where you invest your money in shares of companies. When you buy a share of a company, you become a part-owner of that particular company. If the company performs well, the share value will rise, and eventually your returns.
Real Estate, on the other hand, involves investing in physical property. It can be an apartment, land, or a commercial space. People invest in real estate mainly for two reasons: either for price appreciation over the years or for rental income. You must have seen many examples of people buying a property a decade ago, and now its value has been doubled or even tripled in some cases.
Stock Market vs Real Estate: Understanding Wealth Creation Potential Of The Two
1. Potential Returns
If we look historically, the stock market has offered better returns over the long term. A well-diversified portfolio can earn you around 10-12% annually, while real estate’s average returns are 6-8%, depending on the property’s location.
However, the point to notice here is that the real estate’s growth feels steady, while the stock market goes through daily market fluctuations. So, if you can handle short-term market volatility for long-term gains, the stocks generally perform better.
2. Liquidity
Liquidity is also a major factor when comparing the stock market vs real estate.
With stocks, you have the flexibility to sell part or all of your stocks or mutual fund units instantly, and you also receive your money in a few days.
But for real estate properties, it might take you months to find the right buyer. Thus, with real estate, your money is tied up for a long time, and that can be frustrating if you need quick funds for emergencies.
3. Initial Investment Required/Entry Cost
One of the major reasons why people prefer stocks over real estate is their ease of accessibility.
With stocks, you can start your investment journey with even ₹500 a month through SIPs. Whereas real estate investment requires a much higher entry cost.
Investing in a real estate property worth ₹50 Lakhs means you will incur a down payment and registration fees, tax, and maintenance charges.
And that is why many young investors start with an investment in stocks or mutual funds. They save gradually until they manage to have a good foundation to purchase a property in the future.
4. Diversification & Risk
In the case of stocks, it is possible to build a diversified portfolio. You have an opportunity to invest across various sectors such as IT, banking, FMCG, or healthcare. So, in case one sector underperforms, others can balance out your portfolio and maintain the overall investments at a stable point.
With real estate property, it is difficult to spread your money. It is hard to own multiple properties, as it would require a large capital. And it is also associated with different risks, such as location, legal paperwork, or tenant issues.
However, real estate has its own strength and stability. Unlike stocks, property prices do not fluctuate daily. Real estate also often acts as a hedge against inflation. For example, rental income generally rises over time.
5. Tax Benefits
Long-term capital gains (held for one year or more) on stocks are taxed at 10% on gains beyond ₹1 Lakh. Short-term gains are taxed at 15%.
Long-term capital gains on real estate property are taxed at 20% after 2 years. But you can save on this tax with reinvestment benefits under Section 54.
Stock Market vs Real Estate: Which One Is Better For You?
There is no one-size-fits-all answer to this. It depends on your personal goals and your mindset.
You should invest in stocks if:
- You want high returns and liquidity
- You prefer small and regular returns
- You are comfortable with short-term market volatility for long-term gains
- You cannot afford to purchase property
You should invest in real estate if:
- You prefer tangible assets and passive rental income
- You don’t mind putting your efforts, money, and time into managing your property
- You have enough capital for long-term investment
The smart investors use a diversified strategy and a balanced approach that combines both assets. For example, they invest 60% of the savings in stocks and the rest, 40%, in real estate that offers them both liquidity and stable returns.
Summing Up
When comparing the stock market vs real estate, the right choice is not about which one is better. It is about which one suits your goals better. If you want to grow your wealth aggressively, you can start with stock market investments or mutual funds. Once you have built enough corpus, you can consider investing in real estate for stability and passive income. And if you are unsure of where to begin or how to rightly balance your investments, you can consult with a professional advisor at Strategic Alpha. The experts can help you plan and diversify your investments so that you can achieve your financial goals.
Also read this blog:- Stock Market vs Mutual Funds: Key Differences Explained
