The path to growing personal wealth in the long term boils down to a choice between investing in either stocks or real estate. Both certainly have their pros and cons. However, a head-to-head comparison of these investment modes will show no reason to prefer one over the other.
Asking which from these two is the better approach would be just like asking which fruit is better in a diet: An apple or an orange? The fact is, many financial advisors suggest having a balanced mix of stocks and real estate properties in your investment portfolio.
Ultimately, your preference of one over the other will hinge on your personal style and circumstances, such as income or available resources. Based on these variables, your choice likewise boils down to the basics and specifics of real estate and stock investments. Let’s take a look at some of their upsides and downsides to gauge what fits you best.
Upside of Real Estate Investment
- Stability—Real estate values appreciate over time and at handsome rates, especially with the continued improving economy of the Philippines.
- Leverage—You can acquire real estate through borrowings, such as government or private home loan financing at attractive or competitive interest rates.
- Insurance—Real estate properties can be insured as a protection to your investment, such as fire or flood damage.
- Loan Collateral—You can use your home as a collateral for a loan if you already have enough equity in it, meaning you have paid enough amortizations to cover the borrowing.
Downside of Investing in Real Estate
- Limited positioning—In general, only a buy-and-hold strategy would work in order to derive the most out of a real estate investment. Be prepared for at the very least a 10-year horizon on such an investment.
- Time-consuming—It takes relatively more time and effort to invest in a real estate deal, especially if you’re applying for a loan to finance it. Even if you can pay in cash, due diligence on the property and documentation of purchase takes a considerable amount of time. Similarly, selling or liquidating your real estate property would be time-consuming.
Upside of Stock Market Investment
- Less cash needed—For as low as PhP5,000, you can start investing in the Philippine stock market. Within a single trading day, you can become a co-owner of a listed company through the purchase of its shares.
- Regular payout—Your investment is assured of a regular payout in terms of cash dividends with the right stock purchase, such as the shares of local market’s blue chips like SMC and PLDT.
- More liquid—You can easily sell your shareholdings on any stock trading day and channel its proceeds to other investments or to your emergency needs.
Downside of Investing in Stocks
- Risky—Prices of stocks could be quite volatile, especially if you’ve positioned on speculative shares. If you and your broker aren’t seasoned enough in tracking the market’s ups and downs, you can lose a substantial amount of money.
- No leverage—Unlike real estate purchases, you can’t get a bank loan precisely for a stock investment. You can’t have insurance on this type of investment either.
Investing in real estate and stocks can both contribute to growing your wealth in the long-term. One need not be sacrificed over the other. With some sound financial planning and professional advice, you can aim for having both in your investment portfolio.