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There are a few different options out there, but these tend to be the best.
1. Bonds 2. CDs 3. Treasury Notes 4. Money Market Accounts 5. Equity Market 6. Real Estate
Now if you want to look for the safest ways to invest without shooting for a huge return, go for options 1-4. They all will give you a decent return without having to take one much, if any, risk.
If you are like me however and want to learn how to invest your money and make a nice return doing so then the question is simple. Real Estate or Equities?
Now there are a lot of opinions on this subject. So let’s look at how each of these two investments compare.
Profitability
Now most people assume Real Estate is more profitable, but over the long term a well managed stock market portfolio can actually beat it.
Say you invest $14,000 into a $100,000 house. If that house appreciates 7% in a year that means you made $7,000 from appreciation a 50% return. The only problem is that it is an inflated return made off of borrowed money. As time goes by that return gets lower and lower until it reaches 7% annual return.
On the other hand if you invest $14,000 into the stock market and earn an average of 20% a year, (a pretty decent return that any professional trader should be able to achieve) you would not suffer from lower returns every year.
Instead you would benefit from gaining a relatively consistent return on your money, year after year.
If you do the math that $14,000 investment account would be worth more than that $100,000 house after 18 years.
So, this really does depend on how well managed the account is. If an investor can consistently make 20%+ returns on a stock trading account then it would be more profitable. If not then Real Estate investing would be the best place to invest money.
Risk
They both have risks. However, real estate investing can be riskier because you take on a lot of debt. If you used $14,000 to buy a house, $10,000 may go to paying off the house $4,000 may go to other bills and the remaining $90,000 that would be used would be all debt.
Using debt can definitely give you leverage, but what happens when something happens.
I know a few people who have been slowly building their wealth over the years by buying rental properties. When the housing bubble crashed however, all of a sudden 7 out of their 10 rental properties where either not rented or the tenants where not paying, basically giving them lots of large bills with no income.
Me on the other hand, I did fine. I made some mistakes, learned a few lessons, switched up my strategy and ended up ok at the end. There is a lot of risk in borrowing money.
That is why as far as I am concerned the best place to invest money is in a well managed stock market portfolio.
I’m Not Knocking Real Estate Investing
I’m not knocking real estate investing. I think it can be a great way to grow your money, but before entering it you had better have a way to soak up all the debt, should you ever end up with a few unrented houses.
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