How Does Real Estate Investment Compare to Investing in Stocks or Crypto

A great approach to increasing wealth and preparing for retirement is through investment. Investors can diversify their wealth and reduce risk by taking advantage of various profitable investment opportunities. The world is full of investment opportunities. Choosing the right ones for you can be difficult.

The benefits and drawbacks of every investment are unique. Maybe your financial adviser tells you to invest in stocks, your best friend tells you to invest in stocks, and every social media post wants you to invest in cryptocurrency. You may be confused about the right investment because they all look like the right one with future potential. Not to worry, this article will guide you on real estate, stocks, and cryptocurrency investment and how to choose the right one that specifically suits your circumstance.

What is Cryptocurrency?

Cryptocurrency is a digital currency that doesn’t exist in any physical form. A cryptocurrency is an alternative payment method developed using encryption techniques. Over the years, investing in cryptocurrencies has grown in popularity. With encryption technologies, cryptocurrencies can act as a medium of exchange and a decentralized accounting system. Digital currencies can be used to buy and trade products and services. Since the invention of cryptocurrencies, their value has increased dramatically, creating enormous wealth for early investors.

In actuality, over the previous five years, Bitcoin’s ROI was 70.16 times greater than the average of the five main indices. With new businesses competing for market share and existing businesses hopping on the blockchain wave, the cryptocurrency industry as a whole has also experienced tremendous growth. Some top cryptocurrencies are Bitcoin, Ethereum, Polkadot, Cardano, Avalanche, Solana, Cosmos, Filecoin, Binance coin, etc. The prospects in the cryptocurrency investment option will continue to expand as more businesses adopt blockchain technology.

Pros of Investing in Cryptocurrency

• Anonymity: Transactions involving cryptocurrencies are fully anonymous, which is advantageous for individuals seeking privacy.
• Transparency: A blockchain-based open ledger is used to store the data, even though transactions remain anonymous. Consequently, information is always transparent and accessible to the general public.
• Decentralization: There is no meddling from the government or influence from the monetary policy because cryptocurrencies are neither issued by central banks nor supported by the federal government.
• Potential for quick gain: Bitcoin has frequently experienced relatively short but significant price increases of more than doubling before declining once more. Some of the greatest daily cryptocurrency gains have topped 200%.

Cons of Investing in Cryptocurrency

• Volatility: Since the cryptocurrency market is still in its infancy, some level of volatility is to be expected. Not everyone can handle the stress of holding cryptocurrencies, despite the enticing nature of their swift market fluctuations. If you invest in cryptocurrencies, you should be aware that, albeit not exclusively, the ups and downs of these digital assets and related technologies will affect your portfolio.
• Excessive cost to mine: Large amounts of electricity and other resources are needed to mine cryptocurrencies. For instance, the energy needed to generate Bitcoin is said to make up the majority of its expenditures.
• Regulatory restrictions: The cryptocurrency is not legally regulated by central governments, despite being legal in many developed nations. Until federal governments approve and regulate cryptocurrencies like fiat currencies, a higher risk will be associated with investing in cryptocurrencies.
• Risk of losing coins: To access your currency tokens in a digital wallet, you will need a private key. You lose your tokens if you misplace your key or your computer hardware malfunctions.

What are Stocks?

A stock, often known as equity, signifies the possession of a portion of a business. You are eligible for a particular percentage of the company’s earnings and assets based on the number of shares you hold. Businesses usually raise money by selling stock. When an organization issues shares for the first time, an initial public offering is frequently used (IPO), after which the shares may be sold again on the stock market. The stock market allows traders or brokers to buy and sell equities. Examples of the stock markets are the London Stock exchange, the TSX, the Nasdaq, and the New York Stock Exchange.

Compared to other investment options, buying stocks often needs less money upfront, and some organizations provide 401k savings plans based on the stock market. Stocks are a desirable option for those who wish to invest but also wish to withdraw their cash in an emergency. Investing in the stock market requires your time and effort to do research. You have various options for investing in the stock market, including buying individual stocks. Buying and selling securities (or stocks) on the stock market can be done through a broker or brokerage firm.

Pros of Investing in Stocks

• High return on investment: The stock market produces significant returns over extended periods.
• Easy to access: Starting doesn’t require a lot of money or experience. Buying shares of firms is simple on the stock market. You can buy them online, through a broker, financial advisor, or both.
• Liquid: Your money is easily accessible. You can sell your shares whenever you want on the stock market. You can convert your shares into cash swiftly and cheaply.
• Beats inflation: In the past, inflation has hovered about 3%, while stock market gains have typically been 10%. Even if the value declines momentarily, you can still buy and hold.
• Takes advantage of a growing economy: A growing economy leads to an increase in companies’ earnings and customer demand, resulting in a larger paycheck for investors.

Cons of Investing in Stocks

• Returns are not assured: When investing in stocks, you should keep in mind that stocks can drop in value, which is why you should never invest your entire savings.
• Time: Investing in stocks comes with risk; it may take a while to see returns on your investment if things go south. Hence, you must take your time to conduct thorough research on each firm, understand how to read a financial statement and new market trends, and also analyze the stock market.
• Taxes: You can qualify for a tax credit if you sell your shares at a loss, but you would have to pay capital gains taxes if you sold your shares for a profit.

Volatility and Emotional roller coaster: As each second passes, stock prices fluctuate. Do not be greedy and fearful to avoid buying high and selling low.

What is Real Estate Investment?

Real estate investing is an excellent method to make your money work for you. You can invest in either residential or commercial real estate, depending on your available funds. Real estate can generate a monthly rental income for you, has tax benefits, and is generally a wise long-term investment. Real estate investing is an excellent method to make your money work for you. You can invest in either residential or commercial real estate, depending on your available funds. In addition to having tax advantages and generally being a smart long-term investment, real estate can bring in a monthly rental income for you. You can invest in real estate with loans with minimum risk. Real estate investments are popular because they are real, you can touch and feel your properties.

Unlike regular stockholders or cryptocurrency traders, you have more control over the value and utilization of your investment. The two main types of real estate investments are residential and commercial. Residential real estate comprises single-family units building, one to four families buildings, cooperative units, and condominiums. Investments in commercial real estate are typically more expensive to start than residential ones because they are centered on properties or structures that generate profits. It is also deemed commercial to have rental properties with five or more household units. Most commercial real estate investors make money from rent from the leases of office and retail space.

Pros of Investing in Real Estate

• It appreciates: Real estate investments increase in value over time. Of course, this is not always the case, and various elements, such as time and management, can affect your yield.
• Tax: Your tax depends on your location, tax bracket, and other factors. There are tax advantages for first-time homebuyers or green upgrades.   
• Steady income: Real estate can bring in passive revenue regularly.
• Diversification: Due to its foundation in actual assets and independence from the stock market, real estate is an excellent means to expand your investment portfolio.
• Beats inflation: Real estate can withstand inflation or economic crisis. 
• Gives you control: Real estate investments give you direct influence over your investment.

Cons of Investing in Real Estate

• Property management: When investing in real estate traditionally, you must either maintain the property yourself or hire a professional which is an additional cost.
• High transaction costs: Real estate investing may involve additional charges, such as high down payments. 
• Capital for investment: A significant sum of money is typically needed to acquire real estate as an investment.
• Maintenance expense: Real estate investment properties tend to incur more maintenance costs.

Digital Currencies, Real Estate, and Stocks as Investments

To better understand these investment options, there is a need to compare cryptocurrency, real estate, and stock in terms of risk, expertise, accessibility, liquidity, returns on investment, and level of regulation.

1.    Risk of Investment

The cryptocurrency market is erratic and unreliable. Some factors can cause coin values to increase or decrease; anything can affect the cryptocurrency market. Trading cryptocurrency actively is a big risk. Stocks and other investment assets fall in the middle of the risk spectrum. For beginners, individual equities have a higher level of risk than derivatives. Real estate investments are low-risk, slow-growing, and easy to predict. Real estate investment can be used to protect your investment from inflation.

2.    Returns on Investment

In the last five years, the S&P 500 stock market index has increased by 105%. Investments in the stock market typically increase in value by 7–10% annually. Bitcoin will be used to evaluate the return on investment for cryptocurrency. Bitcoin’s value has increased by nearly 8,000% in the last five years. Over the past 25 years, average returns on real estate investments have been 10.3%.

3.    Investment Liquidity

Liquidity varies among digital currencies. Like Bitcoin and Ethereum, coins with high volume are widely used and volatile. Digital currencies with lesser restrictions could be more difficult to buy or sell. Liquidity is quite high for stocks because they are easy to buy and sell with regular demands. Investments in real estate are among the least liquid assets. Real estate is quite stable and can stand the test of inflation, but they have low liquidity because they are difficult to sell.

4.    Level of Regulation

Cryptocurrency is a newer innovation with no government influence or regulations. Governments are uninterested in regulating cryptocurrency investments, which offers scammers a foothold that makes it difficult to identify fraudulent activities. Stock regulation is a challenging process. Several forms and documentation need to be filled out to list a firm on a stock exchange. Stock market regulation is the major goal of many government bodies. Investment in real estate is common in the world, but with the strict market, regulations protect buyers and sellers.

5.    Expertise Required

Compared to investing in stocks and real estate, cryptocurrency is less complicated. You can use the internet to learn about cryptocurrencies. The internet is where you can get a wealth of free educational materials. Everyone, even those without bank accounts, can use cryptocurrencies. More information and expertise may be needed for stock investing than for cryptocurrency. Learning how to trade, buy and sell stocks can take years, and it is continuous. Investment in real estate calls for a strong knowledge base. Many people enjoy trading stocks and cryptocurrencies, but not real estate, because it is for serious-minded people.

6.    Level of Accessibility

The easiest of these investment options is cryptocurrency investment. Even better, earning cryptocurrency doesn’t require a bank account. Simply having an internet-connected gadget is all that is required. The accessibility of stocks is higher than that of real estate but lower than that of cryptocurrencies. With commission-free trading apps, stock investment is now simpler than it used to be. The most difficult investment to get started with is real estate. Most investors are unable to afford the money, time and commitment required.

Stocks vs. Real Estate vs. Crypto Stocks on a Table

Factors to Consider Before Making an Investment

Before investing, there are different factors you need to consider to avoid losses and increase the chances of making a high return on investment.

1.    Reason for Investment

It’s important to remember that different investment vehicles have different characteristics. Each investing objective has a unique objective, as well as benefits and drawbacks. Before making the best investment decision, you must have a clear financial goal. 

2.    Researching the market 

Before making an investment decision, it is important to undertake extensive market research. When you do this, you’ll gain a better understanding of the market, get a sense of the businesses you should invest in, and be better able to choose investments that will benefit you. 

3.    Risk levels 

Choose lower-risk investments, even if the profits may not be as large for investment security. Your investments might be slightly different if you want large returns that come with higher risks. 

4.    Investment Duration 

Your investment timeframe should be determined by your financial objectives and the motivation behind them. The longer you invest, the larger portfolio you will amass. Not all investments have the potential for profitable returns. 

5.    Taxations 

Your investment returns may be influenced by the differing tax rates that result from various investments. Making wise investment choices is made possible by a solid understanding of tax regulations.

6.    Liquidity 

Long-term investment value growth is something you should take into account. If the investment you have picked has great liquidity and long-term potential, you can profit from market price changes and simply sell the investment if you so choose. 

7.    Volatility 

Volatility can be characterized as measuring how much your asset’s price can change as time passes. You should take the volatility of your investment into account based on your risk tolerance. Depending on your investment goals, this could greatly impact your choice of investments.

Conclusion

After considering the pros and cons of investing in stocks, cryptocurrency, and real estate, it is important that you consider the amount of capital needed to kick start your investment journey. If you are looking for non-QM loans to invest in real estate, stock, or cryptocurrency, you should consider Aurum and Sharpe. We provide non-QM mortgage loans to help you start your investment journey smoothly without worrying about where to get the capital. We also have an experienced team that can provide you with advice throughout your investment journey. Visit our website to start a successful investment journey.

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