The need for security is one of the most vital and critical needs for everyone, be it physical, emotional, or financial security. And when it comes to the latest, there are many available means to achieve financial security with degrees of risk that can vary drastically. However, choosing the best investment has usually been limited between Stock Market vs. Real Estate investments.

As a matter of fact, there has been a debate going on for decades over which investment is actually better. Real estate and stock investments have gained popularity not because of the degree of their safety which differs between the two, but rather because of how lucrative they are and their high return on investment (ROI).

So, considering Stock Market vs. Real Estate investments, which one is better? There is no definitive absolute answer to that question. The case differs for every person according to many factors including their financial abilities, the degree of risk they are willing to take and so many other factors.

However, as is the case with everything, neither of both is totally perfect. There are pros and cons for both real estate and stocks investments that we will discuss here to help you decide which of them would suit you:

Real Estate Market

Real Estate Market

Pros

1. Tangibility: Properties are, of course, things that you can touch and see; naturally, this gives the investor a better sense of security than intangible stocks.

2. Consistent Income: If you leased your property, you are ensuring yourself a constant monthly cash flow and a consistent second source of income. Such a return on investment is rarely found in other types of investment if any.

  • Value Keeper: Unlike the other assets or investments you might go for, you would not have to worry about the depreciation of the value of the property as time passes. Quite the contrary, more often than not, the properties’ prices increase over time.

However, even if the local real estate market nosedived, the property would still maintain a decent percentage of its original value.

Cons

1. Liquidation difficulty: As tangible as it is, properties are difficult to be sold and liquidated more than the other assets and investments and they take a longer time. Thus, it is important that you remember to purchase a property only if you intend to keep it for the long term.

This can act as a pressure on you if you are in serious need of the money and you need to sell the property as quickly as possible because you might be forced to sell it for a price that is significantly less than its value.

2. Difficult to manage: If you do not have any previous experience in the real estate market, the risk increases significantly. From the moment you start looking for a property to invest in till after you make the purchase, there are multiple risks and factors you need to consider and manage carefully in order to not lose the face value of the investment.

For starters, you might end up purchasing an overpriced property or a property that has a low return on investment. Even after you purchased and leased it, you need to be ready to face issues that may arise because of some abusive tenants’ behavior which can damage the property.

Real estate must be managed on a constant basis to make sure it is not losing its value over time.

If you need help with real estate management in Bahrain give us a call, we are here to help!

Stock Market Investment

Stock Market Investment

Pros:

1. Liquidity: Perhaps the key difference between real estate and stock markets is how the stock market is active. On daily basis, hundreds of transactions take place between sale and acquisition.

2. Higher return on investment: Shares usually generate higher profits due to the lively and volatile nature of the stock market. As a matter of fact, since 1926, stocks’ have maintained a return average of 10%. Sure, the return on the stock investment can vary from one year to another but over the long term, the stocks could successfully maintain a relatively high return on investment.

3. Diversity: In the stock market, you can – and you are actually recommended to – diversify your portfolio through buying stocks in different industries, sectors, and niches. This will help you recover more quickly from the loss that could occur if the price of the stocks in a certain sector that you have been investing in fell down significantly.

4. Decision-making ability: As a shareholder, by definition, you own a percentage of the corporation’s equity; therefore, depending on your percentage, you get to agree or disagree with the major decision taken by the executive board of the company.

Cons:

1. Volatility and Instability: The stock market’s fluctuant nature is a double-edged weapon. As much as you have the chance to gain a two-digit profit percentage, you might as well lose an equally significant portion of your investment due to factors that you mostly have no hand in (e.g. PR crisis the corporation is going through).

2. Competitive Field: In the stock market, you are surrounded by professional brokers who sell and buy stocks for a living. If you are inexperienced in the field or if you have little to no knowledge, you might end up losing all of your investments.

That is why it is important to be careful, take your time in studying the market and the sector or sectors you intend to invest in, and ask for the consultancy of the field professionals.

To summarize, although real estate and stock market investments are two of the most profitable investments, they – like any other investment – have their advantages and disadvantages.

If you would like to invest in stocks, our advice would be to not use all your savings and try to diversify your portfolio as much as possible to minimize the potential damages. If you prefer real estate, be very careful and consider the fact that this is a long-term investment that is hard to be liquidated and that needs consistent follow-up, so make sure you are choosing the right property for you.

To learn more about the real estate market see also:

Take a look at the top 5 real estate developers in the GCC

What is really considered prime real estate and how to spot it

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