The closer you are to retirement, the less risk you should accept with investing money. Where do you draw the line since investing is a tried-and-true method of ensuring that you can unwind, travel, and enjoy your well-earned retirement years sometime in your life?
There are several strategies to increase your money by investment. The best approach, however, is to start investing early and keep doing a bit each month. Over time, your initial investment will increase so you will eventually be able to live solely off the interest that a sizable primary amount generates.
Stock market investing through an employer-sponsored 401(k) is the most common investment option. You can invest in stocks independently, which allows you to access the money whenever you choose, unlike retirement accounts, where you must be at a particular age to make penalty-free withdrawals.
Another way many investors increase their money is through real estate investment. Since there are no limitations on how you can use whatever profit you make, using this strategy might enable you to retire earlier.
This article examines the advantages and disadvantages of stock and real estate investing.
Pros of Real Estate
Individuals require a place to live in any economy, including those in a boom, slump, or depression. There will always be a demand for cheap rental accommodation, even though market rents may fluctuate.
Cash Flow Now and Passive Income
Real estate investing allows you to be as involved or passive as you want to be. You might produce a higher monthly income flow by autonomously maintaining your properties and performing repairs. You can also engage a property management business to take care of everything for you while preserving property ownership if you still have a demanding day job or don’t want to deal with it.
If you have positive cash flow, your tenants are ultimately responsible for paying all your expenses, including your monthly mortgage. This indicates that you are accumulating equity without having to make any monthly financial contributions of your own.
Leverage
You can earn interest on loans taken out in the form of mortgages by investing in real estate. You get to receive the full return from monthly rent or property appreciation, even if you don’t have to invest the entire home’s value on your own.
Expense Reductions
It’s true what they say about real estate investments helping you with tax deductions. You’ll be able to write off costs like transportation, owner-paid utilities for your properties, and a share of any payments for services connected to your business, such as your cell phone or internet service.
You can also depreciate your property on top of that. Depreciation allows you to spread out the cost of your asset over its useful life, lowering your taxable revenue.
The fact that profit from rental properties is taxed as ordinary income rather than being subject to self-employment tax, which would otherwise be a whopping 15% on top of your regular income tax rate, is perhaps one of the biggest tax benefits of real estate investing. This is because rental property profit is not subject to self-employment tax, unlike other entrepreneurial businesses.
Inflation Protection
One of the most beneficial advantages of real estate investing in the present markets is that properties rarely feel the effects of inflation. Real estate investments typically increase in value alongside inflation rather than decline. In fact, over the past three decades, property values have remained stable, along with inflation.
As a real estate investor, your expenses will align with your income and property value. If you are a landlord, you can change how much you charge for rent to preserve or even increase your income flow in response to inflation.
Numerous Investment Possibilities
One feature of real estate that many people find particularly enticing is its flexibility. Purchasing a single-family home, a piece of land, or leasing commercial real estate are all examples of real estate investments. The best real estate investment for you depends on your lifestyle, financial goals, and capabilities. You’ll get to decide what properties and assets you buy as a real estate investor and how you make money.
Cons of Real Estate
Time and Effort
Even while you might be able to hire someone else to handle your real estate investment, you’ll still have to invest time and effort in finding the right property, paying for any necessary upkeep, and establishing the workflow. You’ll also need to put in some action during the tax season.
Real Estate Isn’t a Liquid Asset
When your money is invested in real estate, it might be challenging to access. If you’re in a rush to sell, you might sell for less, but you’ll still have to wait 30-60 days to get your money.
Poor Market Circumstances
Long-term trends show that real estate values rise, but there are sometimes downturns. This can surprise you if you aren’t considering long-term investing and don’t have much equity built up. It occurred during the 2008 housing market collapse. Many investors were “underwater,” which meant that the value of the homes they owned had fallen below the amount of the mortgage they still owed.
They had to choose between selling the home immediately and paying the bank back for the mortgage out of their own pocket or being obliged to keep it even if it wasn’t making a profit.
The Price of Selling a Home
While moving money in and out of the stock market is simple and low-cost, selling real estate may be particularly challenging. A seller’s closing charges range from 5% to 6% of the ultimate selling price. That amounts to $5,000 to $6,000 on a $100,000 investment property.
Consider working with a discount agency if you’re selling to avoid paying commissions. Also, bear in mind that by using a 1031 exchange, you might be able to evade paying capital gains tax on your sold investment property.
Pros of Stocks Investing
Stock Grows in Value Over Time
Historically, the value of stocks has risen with time. The S&P 500 has an average yearly ROI of 9% to 10%. Equities gain value in the long run, even though it doesn’t happen yearly.
Own a Piece of a Company without Putting in Any Work
When you own stocks, you effectively own a share of a business but are not responsible for its financial success. You only need to give the company access to your investment funds; if the business succeeds, you will get a return on it. A stock is the most passive investment vehicle available.
Easy Diversification
You are allowed to own as many stocks as you like. This makes it simple to diversify businesses and industries. No matter how hazardous your portfolio is, it can be diversified. To diversify your real estate holdings similarly to the stock market, you must own the entire property unless you invest through real estate investment trusts (REITs).
Liquidity
Stocks are incredibly liquid when compared to real estate. In truth, most trading systems let you transfer money with a single click to your bank account. This can be very useful if you want to spend money immediately. However, it’s not if you anticipate needing access to it in the future.
Cons of Stocks Investing
Economic Recessions Can Lead to Major Losses
Even though stocks often gain in value in the long term, your supplies could lose a significant amount of value in a matter of hours during times of economic downturn. And even though your initial reaction could be to panic and withdraw the balance of your funds, it’s best to maintain your composure and distance from your investment at such times. Your assets will often increase again after the market has corrected itself.
Stock Prices Frequently Fluctuate
Stock prices, in contrast to real estate, fluctuate constantly. A gently declining real estate market may be possible, but equities can be a little trickier. Additionally, they might rise quickly again, so it’s not always a smart idea to withdraw your money in a hurry.
Quite Risky
Long-term investment can enable you to accumulate money, but turning a significant return on equities can be challenging. You can purchase riskier equities in the hopes that they will succeed.
But keep in mind that you have no control over the company and, as such, cannot influence its course. Stocks are dangerous by nature since you cannot control your profit or loss.
Time-consuming
You must closely monitor the market if you want to play the short-term game to decide when to invest and withdraw money. But if you’re betting on the long run, you’ll need to be content with watching the market evolve without being able to influence it.
Don’t get into any form of investment blindly; instead, make sure you do your research before putting your money anywhere.
Contact Information:
Email: [email protected]
Phone: 3604642979
Bio:
After entering the financial services industry in 1994, it was a desire to guide people towards their financial independence that drove Aaron to start Steele Capital Management in 2013. Armed with an extensive background in financial planning and commercial banking coupled with a sincere passion for helping people, Aaron has the expertise and affinity for serving the unique needs of those in transition. Clients benefit from his objective financial solutions and education aligned solely withhelping them pursue the most comfortable financial life possible.Born in Olympia, Washington, Aaron spent much of his childhood in Denver, Colorado. An area outside of Phoenix, Arizona, known as the East Valley, occupies a special place in Aaron’s heart. It is where he graduated from Arizona State University with a Bachelor of Science degree in Business Administration, started a family, and advanced his professional career.Having now returned to his hometown of Olympia, and with the days of coaching his sons football and baseball teams behind him, he now has time to pursue his civic passions. Aaron is proud to serve on the Board of Regents Leadership for Thurston County as the Secretary and Treasurer for the Morningside area. His past affiliations include the West Olympia Rotary and has served on various committees for organizations throughout his community.Aaron and his beautiful wife, Holly, a Registered Nurse, consider their greatest accomplishment having raised Thomas and Tate, their two intelligent and motivated sons. Their oldest son Tate is following in his father’s entrepreneurial footsteps and currently attends the Carson College of Business at Washington State University. Their beloved youngest son, Thomas, is a student at Olympia High School.Focused on helping veterans and their families navigate the maze of long-term care solutions, Aaron specializes in customized strategies to avoid the financial crisis that care related expenses can create. Experience has shown him that many seniors are not prepared for the economic transition that takes place as they reach an advanced age.With support from the American Academy of Benefit Planners – an organization with expertise and resources on the intricacies of government benefits – he helps clients close the gap between the cost of care and their income while protecting their assets from depletion.Aaron can help you and your family to create, preserve and protect your legacy.That’s making a difference.
Disclosure:
Disclosure:Investment advisory services are offered through BWM Advisory, LLC (BWM). BWM is registered as an Investment Advisor located in Scottsdale, Arizona, and only conducts business in states where it is properly licensed, notice filed, or is excluded from notice filing requirements. BWM does not accept or take responsibility for acting on time-sensitive instructions sent by email or other electronic means. Content shared or published through this medium is only intended for an audience in the States the Advisor is licensed in. If you are not the intended recipient, you are hereby notified that any dissemination, distribution, or copy of this transmission is strictly prohibited. If you receive this communication in error, please immediately notify the sender. The information included should not be considered investment advice. There are risks involved with investing which may include market fluctuation and possible loss of principal value. Carefully consider the risks and possible consequences involved prior to making an investment decision.Confidential Notice and Disclosure: Electronic mail sent over the internet is not secure and could be intercepted by a third party. For your protection, avoid sending confidential identifying information, such as account and social security numbers. Further, do not send time-sensitive, action-oriented messages, such as transaction orders, fund transfer instructions, or check stop payments, as it is our policy not to accept such items electronically. All e-mail sent to or from this address will be received or otherwise recorded by the sender’s corporate e-mail system and is subject to archival, monitoring or review by, and/or disclosure to, someone other than the recipient as permitted and required by the Securities and Exchange Commission. Please contact your advisor if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. Additionally, if you change your address or fail to receive account statements from your account custodian, please contact our office at [email protected] or 800-779-4183.
