Let’s talk about the perks of owning stocks over real estate. I’ve been investing in both since the mid-90s and early 2000s, respectively. They’re both crucial assets to have, with about 30% of my net worth in stocks and 50% in real estate. From my passive investment income of around $380,000 annually, about $80,000 comes from stock dividends.
I was surprised that my previous article, where I favored real estate, didn’t get more backlash, especially from those living in pricier coastal cities. But I also got some heat from folks in the Midwest. They argued that they’ve made more money in the stock market, which makes sense given the lower housing costs there.
Looking ahead, I predict that in 20-30 years, the Midwest will become a hot spot for real estate investment. As technology advances, people won’t need to live in expensive cities like San Francisco. More people will be freelancing and working remotely, making it possible to live anywhere. This will likely lead to an increase in real estate prices in the Midwest.
Now, let’s talk about why I’ll always have a good chunk of my net worth in stocks. Despite not deriving any pleasure from owning stocks, they’re a necessary part of my asset allocation because they historically outperform inflation by 3-5 times. Here are some reasons why stocks have an edge over real estate:
- Higher historical rate of return: Over the past 60 years, stocks have returned about 10% annually, compared to 4% for real estate.
- Liquidity: If you need cash quickly, you can easily sell your stocks. Selling real estate, on the other hand, can be a lengthy and costly process.
- Lower transaction costs: Online transaction costs for stocks are now free, while real estate commissions can be as high as 5-6%.
- Less work: Real estate requires constant management, while stocks can be left alone to pay out dividends.
- Easier to diversify: With stocks, you can invest in different countries and sectors. Real estate investments are often concentrated in one area.
- Invest in products you care about: You can invest in companies whose products you use and love.
- Tax benefits: Capital gains and qualified dividends have a maximum tax rate of 15-23.8%.
- Easier to protect your investment in a downturn: You can sell or short a stock if you think the market is about to crash.
- Less taxes and fees: Owning property comes with property taxes, maintenance costs, insurance costs, and transaction costs.
That said, real estate is still a great investment, especially for those who prefer tangible assets and enjoy interacting with people. But as you get older, managing real estate can become more challenging. That’s why I’m now investing more in private real estate funds.
In conclusion, owning stocks has many benefits. Just be prepared for occasional market corrections. Over the long run, stocks have provided positive returns, helping millions achieve financial independence. If you’re interested in real estate but don’t want the hassle of managing it, consider real estate crowdsourcing. It allows you to invest beyond your local area for potentially higher returns.
