Investments are subject to market risks– how many times have we all heard this statutory refrain whenever any new advertisement comes up about a financial product? The answer is countless and nothing could be truer really if you think about almost all major investment avenues today.
Two of these investment channels are finding more prominence now in debates amongst people as to channelizing their hard earned money in a better. Real estate or property has been a favoured investment avenue for decades. Equity has also carved its niche when it comes to being a preferred investment channel. Which one is better for you? Let’s find out- the answer may well surprise you!
Investing in Equity
Agreed, investing in equity does come with its own set of risks but it has some bright sides as well. There are a few advantages if you have financial assets built up in place of realty assets. There are no concerns over safety since you have the assets electronically stored. They can also be diversified into multiple business sectors and offer higher liquidity levels if you wish to cash out. In case you hold the capital gains for more than a year, they are tax-free as well. You can directly invest in picking up equity or through mutual funds.
Direct investments necessitate more research on your part and you can either purchase or sell off stocks based on the same. You can also invest through a mutual fund. Equity mutual funds offer a major benefit, i.e. you do not have to track markets regularly. These funds have several kinds including index funds, sectoral funds and diversified funds among others. Every fund caters to a very specific investor type and you can choose a mutual fund once you have finalized your own appetite for risk and your financial objectives alike. You should invest through SIPs in order to avoid any scenario where market timing matters. Also, you can start building wealth immediately by investing smaller amounts which is another advantage.
Investing in Real Estate
There is always scope for appreciation of capital or land values if you’re looking at buying real estate. The longer you keep a property, the higher is the appreciation in capital values in most cases. Additionally, you can rent out the property for earning a steady income via rentals and also get more security overall. Now real estate investors are usually passive investors or speculators. The latter buys property with an aim towards selling at a profit on a short-term basis with any boom in the market. Passive investors hold onto the property for the long haul and they may or may not choose to sell off the same anytime soon.
There are some disadvantages, namely the fact that you have to invest a higher amount initially, legal aspects and lower liquidity, i.e. trying to sell immediately may lead to selling off at a loss even. There is a maintenance cost that has to be borne as well and offsetting these costs and the EMI (if you have taken a loan) with rentals can sometimes be tough. Real estate is not an investment for quick gains which is something that cannot be emphasized enough. Holding onto it and making a wise decision can lead to stratospheric gains but this does not happen quickly and is not guaranteed.
Which should you invest in?
The answer may surprise you as stated above- you should have both equity and real estate in your portfolio. You should always have equity investments via mutual funds if you’re comfortable for building wealth along with investments in property whether residential or commercial. However, do your research prior to investing and stay in it for the long haul.
At the end of the day, having property equals more security for you and your family. In an ideal scenario, you should have one property which is self-owned and occupied and another which is invested in, possibly for earning rental income. Thereafter, diversify into equity investments and even consider REITs which are soon going to be the next big thing in terms of income generating property investments. Never have all your eggs in one basket. Invest in both equity and real estate for a better financial footing.
