Whether it’s for retirement, a university fund or just an extra income, many if not all people, turn to the stock markets for investment opportunities. You’ll find that it’s a very common situation – people wanting financial freedom but not knowing where to house their investment to generate the best possible results.
Even though the stock market is a very common investment vehicle, there is another approach that could perhaps be better-suited for you and maybe even more effective. Don’t feel bad, you’re not late to the party – we’re just getting started.
The industry that provides us with our concrete sanctuaries can also serve as a concrete gold-mine, and under the right circumstances can and does provide, not only better returns but a lower-risk environment than that of the stock market, not to mention the many ways in which you can diversify your real estate portfolio.
Ten years ago, approximately two-thirds of the U.S was investing in the stock market but due to the 2008 crash, the sense of financial security plummeted, leaving most Americans feeling threatened and not very willing to invest. In 2016 participation in the stock market plunged to something like just a little over 50%.
Today, not just Americans but the entire world is still recovering from that very crash, and although the stock market is the most popular investment vehicle, we’ve seen a significant rise of interest in real estate investments. About 15% of Americans already have a real estate investment outside of their own residence.
Since 2000, stocks have managed, on average, to give back to investors an ROI of 8% a year. Real estate, on the other hand, has been continually outperforming the stock markets since 2000, with an average annual return of 10.71%. That’s a significant gap and shouldn’t be ignored. Generally, real estate appreciates 3-4% a year, and this is just the land itself. If the property you’ve invested in gets rented, then you can definitely expect to see returns from there as well. It’s there, it’s concrete and you own a part of it for which you get monthly rewards. Really, come to think of it, is there anything not to like?
But let’s not just talk butterflies. As with any type of investment, when there’s a reward, there’s a risk and it’s the price all investors need to be prepared to pay for paving shortcuts to retirement; but there are crucial differences between the risks associated with the stock market to the risks associated with the real estate industry that need to be noted and understood. Stocks are very liquid which means they can be very easily sold and bought.
It also doesn’t take a millionaire to get going in the stock market, which ultimately makes it a very appealing option. However, it is also a risky option because as we all know, sometimes prices can be very volatile. High dividend stocks generally generate a stable passive income, but if you’re solely relying on high dividend stocks, isn’t it a possibility that you could be missing on bigger opportunities? I say this a lot and I’m going to say it again because it’s true – diversification is critical to success.
Now, real estate may not be as liquid as the stock market, but it is generally a much safer investment, especially if we’re talking long-term, and you could even get see some tax benefits. Risks associated with real estate are the inability to sell or rent the vacant property, and of course the catastrophic scenario of a Black Swan. But there’s no real way to predict a Black Swan, so I’d file that one under ‘general risk of being on planet Earth.
However, the fact that real estate is a safer investment does not mean that you can dive in without having done your research. Knowing as much as you can about your investment always helps minimize risks.
Bottom line? Well, it really depends on what kind of investor you are. As we previously mentioned real estate may or not be a better-suited investment option for you, but to bluntly answer the question you came here to get an answer to – yes, real estate could be your shortcut to early retirement. Having said that, don’t you think it’s time to investigate a little further?