Are you looking for a long-term investment that will guarantee a steady flow of income but still don’t have a clue?
Well, stock trading and real estate are two great options that could help you grow your income exponentially.
But you might wonder: It’s a bit risky to invest in stock since things move really quickly and there is a lot of speculation. Again, you might say that real estate requires a long period of commitment and high down payments that make it practically impossible to get your return on investment quickly.
However, you mustn’t shy away from the fact that every business involves some sort of risk. They all have their pros and cons. So before pulling out your wallet to invest in any kind of business, you should learn the ropes and take time to access your value at risk.
Investopedia defines value at risk (VaR) as the statistical technique that’s used to measure and quantify the level of financial risk within a firm or investment portfolio over a specific time frame.
In addition, there isn’t really a better choice between stock trading and real estate investment. Both are equally profitable. Therefore, the smart choice is to tap into the treasure pot of both business models to grow your wealth.
Here are some good reasons to invest in both stocks and real estate.
Funding isn’t an issue
Although investing in real estate might require a huge investment capital, having access to funds isn’t much of an issue. If you have your own property, outlay is typically limited to tax payment, cost of maintenance and a few sundry costs. But if you’re buying properties, you could apply for a mortgage. However, you should be prepared to make a downpayment of about 20% of the property value.
In addition, all the costs involved in real estate leave a wide margin for profit. Simon Llewellyn, managing director at Homes and Villas Abroad, explained, “In the Italian property market, for instance, there is usually some scope for negotiation on listed prices of up to 10% or even 15%. So you can buy valuable properties at affordable prices depending on your ability to negotiate.”
On the other hand, investing in stock is quite flexible in the sense that you can start investing with as little as $1,000. With online trading the order of the day, there’s really no restriction such as minimum deposit. In the end, the returns are always bigger than investment provided there are no sudden changes in the market.
Risk is worth taking
The risk involved in stock accounts for why many people, especially millennials, avoid stock trading. The results of a UBS Investor Watch study revealed that there’s a conservative risk tolerance among millennials as they hold 52% of their savings in cash while investing only 28% in equities.
However, the interesting thing about handling stocks is that risk can be managed and kept low. Essentially, all you have to do to reduce stock risk and volatility includes diversifying stock, looking for stock with acceptable price-earnings (P/E) ratios, trading in stocks with steadily increasing earnings per share and leveraging low beta stocks and stocks with wide margins of safety.
In real estate, there’s a bit more control over how much risk you'd be taking regarding amount to invest and asset allocation. If you know your market well, you can almost always predict when properties will rise in value, hence bringing more profit. In all, the risk is worth taking.
Start a free seven-day trial of Premium Membership to GuruFocus.
