Invest in Real Estate or Stocks???

[Stellaa]

I have some amount of earnings apart from the ones that I save for my necessities. I want the earnings invested in some real estate or may be in stocks. I do have some knowledge on stocks but, earlier my cousin had invested in the stocks and had a set-back. I know that you need to be updated in that but – What is a better option from the two???

[Greebo]

I have some amount of earnings apart from the ones that I save for my necessities. I want the earnings invested in some real estate or may be in stocks. I do have some knowledge on stocks but, earlier my cousin had invested in the stocks and had a set-back. I know that you need to be updated in that but – What is a better option from the two???

Well - real estate investing is a good way to add to a portfolio, but of course requires a lot of money and can be a very hands on process taking a lot of time. Also, if you don't want to be a landlord, the kinds of real estate investments available are limited to flipping (bad right now), developing, or buying and holding.

Now - stocks can be lucrative, or they can be devastating. If you intend to "time the market" for example, that's a great way to lose money. However, stocks require less money overall.

In my opinion, however, single stock investing is too risky. (Can you say "Enron"?) Without some serious knowledge about the company you can never be sure how it will do, so you do not want to have all your eggs in one basket, and when you single stock invest, thats exactly what you end up with.

Of course, you could spread the money around across several stocks - but this requires more savvy about more companies.

A very sound way to invest, on the other hand, is by buying mutual funds. Mutual funds are funds which buy a broad range of socks and are managed by people who do the stock deals for a living and know a LOT about the market. They tend to invest in different kinds of stocks, across different sectors and different companies in each sector. This gives you diversification, which means if one sector goes down, the other sectors help protect against the overall loss.

By choosing good growth stock mutual funds that have strong track records (at least 5 years, preferably 10, 12% return or better) you can get a good return on your investment (12%+) over the LONG term, and still be very safe compared to single stocks. As an example, one mutual fund managed by T. Rowe Price, the New Era fund, has averaged over 17% annual returns since the 1960's. That's an awesome fund!

But you should also diversify in funds - don't just buy one - buy several - spread around across funds because different funds have different focuses. One fund may be only mid-cap stocks, while another might be dividend reinvesting, and another might be more international. If a mutual fund is like having many baskets, than having a spread of funds is like having many baskets FULL of many baskets.

I would recommend that you check out a Dave Ramsey Endorsed Local Provider (ELP) for Investing http://www.daveramsey.com/sa/mutualfunds/ and have a sit down with one of them. They can teach you about your options and help you formulate a plan that works well for you.

[dcompton]

Acck! I lost a whole reply. In short. I have been told by a financial advisor (take that for what it's worth) that real estate is a good balancing element in a portfolio. I have my retirement accounts with TIAA-Cref, and they have a real estate option (commercial real estate) that seems to work more or less like a mutual fund -- you just buy shares in it. Real estate without having to fix the roof. I don't know if anything like that is generally available. The guy I was talking to was glad to see I had a portion of the account in that.

Disclaimer: That's all I know about the matter - virtually nothing - and it's all only what I've been told. Trust it at your own risk.

[Greebo]

Acck! I lost a whole reply. In short. I have been told by a financial advisor (take that for what it's worth) that real estate is a good balancing element in a portfolio. I have my retirement accounts with TIAA-Cref, and they have a real estate option (commercial real estate) that seems to work more or less like a mutual fund -- you just buy shares in it. Real estate without having to fix the roof. I don't know if anything like that is generally available. The guy I was talking to was glad to see I had a portion of the account in that.

Disclaimer: That's all I know about the matter - virtually nothing - and it's all only what I've been told. Trust it at your own risk.

You're talking about a REIT, I think - a Real Estate Investment Trust. Yes, it works something like a mutual fund.

My understanding, however, is that the rates of return on REITs are generally lower than mutual funds and much less lower than actual hands on real estate.

Check the prospectus for the REIT you're considering.

[NMMatt]

You're talking about a REIT, I think - a Real Estate Investment Trust. Yes, it works something like a mutual fund.

My understanding, however, is that the rates of return on REITs are generally lower than mutual funds and much less lower than actual hands on real estate.

Check the prospectus for the REIT you're considering.

REIT's became popular during the real estate bubble as they were giving better returns than stocks. I've read some people who claim that you should diversify between stocks, bonds, real estate (through REITs) and commodities (through commodity index funds). It's not a bad idea. What is a bad idea, however, is putting money in whatever sector is currently popular or changing your investment strategy repeatedly.

Personally I prefer index or other low fee stock funds with a little bond exposure for the long term. It's simple and has a good track record over the long run. I'm not sure that diversifying to REITs or commodities - despite the real estate and oil bubbles we've recently seen, is going to work out much different than focussing on stocks over the long run - though there is some evidence that you get comperable returns with a bit less volatility using that strategy - i.e. usually one sector is overperforming balancing out the under performing ones.

[frugal-fannie]

I would look at something safe like a gold fund or a utility fund, other options would be a natural commodity fund , like an oil fund. I think real estate is still dropping and the same with stocks unless it is the hard asset or safe ones I mentioned. Especially since I think the dollar will continue to drop. and you may have a crash still in the future.

[samthomas]

Hi,

I would suggest you to invest in real estate. Investment in real estate will give you good profit in long term and it’s less risky and better than any other investing options.