I invest in both the stock market and in real estate because they both provide opportunities and have differing risks. Although most of my investments are in real estate, the stock market provides me an investment opportunity that is highly liquid. In other words, if I was strapped for cash today, I could sell all my stocks tomorrow and have the cash in my bank account the day after that one. Real estate transactions can take 30-60 days depending on the transaction details so it would be impossible for me to use my property’s equity to pay for an emergency.
On the other hand, real estate investment provides four ways to make money:
Cash flow from the rent minus expenses
Appreciation as your property grows in value
Equity as your tenants pay down your mortgage
Tax deductions (e.g., depreciation) from the government can reduce W2 tax burden
For most people, stocks can only provide cash flow from dividends and hopefully appreciate in value.
In terms of time, setting up and maintaining, a real estate portfolio is much more time consuming than buying stocks passively. However that added management time can lead to real estate outperforming stocks. But it is far from guaranteed.
In general, real estate investments tend to change prices less frequently than stocks which means that your stock portfolio can lose value rapidly (see TSLA in 2022) but your real estate portfolio will never double in value like a stock (see OXY in 2022). (As an aside, the most cynical parts of me believe the US government is incentivized to prop up the stock market since it is the engine that runs our economy.)
In the end, for the average person there is no wrong answer as long as you save and invest. Feel free to reach out to me if you want my general advice on your personal situation.
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