Stocks or real estate: where is it safer to invest?

Acciones o inmuebles, dónde es más seguro invertir

Stocks or real estate: where is it safer to invest?

Actions and real estate constitute two fairly traditional investment assets—although, theoretically, real estate falls under alternative investments. At first glance, markets convey a sense of volatility and continuous fluctuations. On the contrary, the real estate sector appears much more stable. This is partly true, but not sufficient to decide whether it is safer to invest in stocks or real estate.

The first thing to remember is that, in this blog, the basic variable for measuring the security or success of investments is time. That is to say, we start from Benjamin Graham’s classic distinction between investment and speculation, and we believe, with J. L. Collins, that any investment made with a short-term focus is more speculative, while any successful investment is, by definition, a long-term investment. Therefore, in this article, we will explore investing in stocks and real estate from the perspective of long-term investment.

Investing in stocks

If we don’t attempt to predict market movements or pick winners, investing in stocks seems like a reasonably safe activity in the long term. We know that market timing is a strategy doomed to fail. Moreover, active management rarely yields positive results. Warren Buffett is the exception, not the rule, and his approach, in any case, focuses on value investing and the long term.

That said, stocks have clear advantages. On one hand, they allow portfolio diversification by participating in different sectors, industries, or countries. They are liquid instruments that can be easily bought or sold on stock markets. And their potential returns are high, especially—you’ve guessed it—in the long term.

Among the disadvantages, volatility must be mentioned. Economic conditions and sometimes unpredictable external events—such as natural disasters or terrorist attacks—can sow distrust in markets and disrupt stock prices. However, if we choose to invest in stocks for the long term through indexed funds and apply a consistent investment plan, we can dampen that volatility while also improving returns.

Investing in Real Estate

Real estate has clear attractions. Everyone knows what a home or office building is and what it’s used for. It’s a tangible asset whose value, although it may vary, will rarely be zero—something that can happen with stocks. That’s why real estate investment has had and continues to have great acceptance. On one hand, it allows generating passive income through rentals: this is the case with traditional investment in rental housing. Real estate properties tend to increase in value over time, allowing for capital gains upon sale.

Among the disadvantages of investing in real estate, entry barriers must be mentioned: the initial investment in properties can be significantly higher than buying stocks. At the same time, it’s a less liquid investment: the process of buying and selling properties can take longer and be less liquid than the stock market. And it entails maintenance and management costs—in terms of money and time—that must be considered.

However, if we choose to invest in real estate through real estate crowdfunding, we can greatly reduce the entry barrier. With Urbanitae, it’s possible to invest in real estate projects starting from just 500 euros. For this reason, diversification by type of property, location, or risk is perfectly possible. And, although investments remain illiquid—you can’t withdraw the investment until the project is completed—crowdfunding spares the investor the costs of property management and all the paperwork.

Actions or Real Estate: where is it safer to invest?

Safety in investments is relative and largely depends on the investor’s risk tolerance and financial objectives. Ultimately, the key lies in understanding your financial goals, risk tolerance, and investment horizon. Both stocks and the real estate sector can play a crucial role in a well-balanced investment strategy.

If we focus our investments on value and the long term, we can view stocks and real estate as complementary assets to generate a profitable and balanced investment portfolio. Stock indices always appreciate in the long term, and something similar happens with real estate. If we choose to invest in stocks through indexed funds and in real estate through real estate crowdfunding, we will minimize risk without giving up achieving attractive returns over a period of 10, 20, or 30 years.

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