Top Reasons to Invest in Real Estate vs Stocks

Real estate and stocks are two of the most popular investment vehicles in the world. Whether you’re investing in buy-to-let property or trying your hand at the stock market, each asset comes with its own selling points and drawbacks. In most cases, what you choose depends on your individual circumstances – how much you have to invest, the flexibility you need and how naturally risk averse you are. In this article, we discuss how property and stocks measure up when compared on common investment factors such as returns, risks and within a portfolio.

Returns

The majority of investors primarily consider one thing – the returns that an asset can deliver. When we consider real estate vs stocks, for example, the type of returns an investor can expect varies wildly. 

Many investors are drawn to stocks because of the accessibility and quick returns they can provide. While they can still offer long-term returns – research by investment bank Goldman Sachs suggests that 10-year returns for the stock market are around 9.2% – they’re commonly chosen for their flexibility in the short-term.  

While two-thirds of the population are looking to invest in stocks in the future, the performance of property over the last two years is making buy-to-let a more attractive proposition.  

Unlike stocks, property can offer two varying streams of income – capital growth and rental returns. These different types of returns mean that property can be adapted to a variety of investment strategies over the long-term.

Past performance also highlights the strength of a property investment. Not only has the average UK property price increased by 64% in the last ten years – a rise of £107,000 – but the average UK rent is also set to hit £1,000 over the next few months.

This means that while stocks can offer more accessibility and flexibility, the returns are incomparable, especially when we consider the dual threat of both rental income and price growth. 

Related: Top 10 Features of Profitable Rental Properties

Risks

If the last four years have taught investors anything, it’s the importance of resilience in an investment asset. While it’s important for investors to find competitive returns, security is just as important and even a main priority.

Prior to the global pandemic, the stock market hit its peak. Supported by a buoyant economy and attractive share prices, the stock market was a clear alternative to property for investors. 

As COVID impacted the wider market however, economic turmoil resulted in a freefall in share prices. This was largely down to the volatility of the stock market – it’s much more susceptible to the impact of the wider economy and inflation. 

UK property, on the other hand, was relatively unaffected. While it did see challenges, low interest rates and government intervention helped sustain the market. This meant that property prices reached their highest point on record, further boosted by pent-up demand and a chronic undersupply of property across the country. 

As a physical asset, buy-to-let property has always been relatively popular with the risk averse, especially when we consider stocks vs real estate. Despite the ongoing uncertainty around inflation and rising interest rates, property prices are expected to rise by 20% over the next five years – highlighting the stability of the asset.

Flexibility

The liquidity of an investment asset – that is, the ease with which money can be put in or withdrawn – is a common consideration for many investors.

Stocks are one of the most flexible assets on the market and can be bought or sold almost immediately, which is ideal for those that want to make short-term investments and adjust their strategy quickly.

Real estate, on the other hand, is typically a long-term investment. If you’re investing in off-plan property for example, your money is usually tied up for several years before you start receiving returns. The difference is, the potential for gains during that time is much higher.

Ultimately, stocks are much more flexible than property but depending on your strategy, this can be a non-issue. Property has always historically performed better over the long-term and for those that want to take advantage of the higher potential, it’s the ideal asset for holding. If you want to make short-term gains or let a stock portfolio build value over the long-term, that works too.

Related: Should You Buy Off-Plan Property in 2022?

Accessibility

The accessibility of an investment asset can be a major factor for many people.

Stocks are typically much easier to invest in – both in terms of initial cost and the process itself. Because they tend to be cheaper, it’s easier to build a diverse portfolio of different stocks and let your money do the work. 

Buying real estate is a more time-consuming process, although this can be mitigated by working with different partners. It’s also a much higher initial cost, although this is offset by the potential for multiple income streams.

Certain investment strategies around stock also require much more day-to-day management than a buy-to-let property. While letting agents and property managers can take the grind out of managing a property, maintaining a stock portfolio yourself is much more difficult. 

For many people, this is why they consider investing in a ready-made ‘fund’ or ‘trust’, a collection of stocks or properties that simply requires a cash investment that then starts paying out dividends or hopefully, growing in value.   

The Bottom Line

Ultimately, the asset you choose depends on your own financial plan.

If you understand the goals you’re trying to reach, it’s easier to make an informed decision around the asset best suited to your situation.

A key takeaway from any discussion around property vs stocks is that they both have advantages and disadvantages – a time and a place where they can help you find success. 

While real estate tends to be the more ‘reliable’ investment asset (it’s important to remember all investments come with risks), there’s no reason an investor can’t use both assets in a wider portfolio. 

Diversification is vital for offsetting risk. By having a mix of investment types within a single portfolio, you not only benefit from multiple income streams but you’re not limited by the performance of a single market. 

The inevitable highs and lows of different investment markets will typically offset one another. In turn, this mitigates the overall exposure you have, allowing you to reduce risk while maximising returns.

The above is intended as a guide only. Always speak to a financial advisor before you make any investment.