Real estate, bonds, equity stocks, all have a history of making people rich but also has a potential of losing money for their investors. Real estate has always been in demand, and with time the prices have been sharply going up since 2000 till 2008, the prices have hardly ever gone down. The Financial markets hit recession during 2008 and real estate has equally been hit during that period.
On the other hand, a lot of investors have a different perception about equity mutual funds. Most investors find mutual funds to be an extremely risky option, and that it’s just resembles gambling. The issue is, not many people understand mutual funds. It would be very surprising to know if mutual funds have generated higher returns than real estate. Choosing which one to invest in will depend on a variety of factors, such as your risk forbearance, time horizon, and how steadily active do you want to remain with your investments.
Basics of mutual fund investment
Mutual funds are an easy way when it comes to investing in stocks and bonds. You can diversify your risk by owning a variety of individual stocks or bonds. If you are highly risk-tolerant, you can buy mutual funds with an expectation of high returns. If you are unfavorable to taking risks, you can make less risky selections. With equity mutual funds, you get the benefit of default diversification. Any sudden fluctuations in one stock can be balanced out by the performance of other stocks in the fund. It is one way of getting a taste of the equity markets, but with lesser risks.
Basics of real estate investment
Owning your own home is the biggest financial goal that every investor aims to achieve. Hopefully, if its value goes up, you benefit out of it, or even if it doesn’t, you have a place to live in. Besides the mortgage costs and initial upfront, income property is one part of the story, while the other consists of taxes, repairs, maintenance cost, and insurance. Most investors barely break even every year, but they sustain with their investment with a hope that the property value will increase.
Risk associated in mutual funds v/s real estate
Only the investors that are less careful will claim that real estate investment is less risky in comparison to mutual funds. The fact is, both mutual funds and real estate belong to the growth asset category. The growth of these two investments depends solely on the growth of overall economy. While Mutual Funds are highly liquid in nature, real estate does take a few weeks to liquidate. An amateur misconception of real estate is that its value always appreciates is incorrect and needs to be corrected which can be referred to 2008 slump where the real estate value had depreciated at a large scale. Real estate is definitely a long-term investment option, and unloading a piece of property can take a bit longer, even if you are willing to handle the losses in a down market.
Key takeaway
Mutual fund investments are meant for everyone and are available for a range of risk profiles. In order to make a choice between the two options, you need to understand your financial aptitude and objectives. Since the market appears to be highly volatile at times, it’s tough to draw a conclusion with reference to their returns. Besides this, Mutual funds provide tax benefits and offer the option of compounding for the disciplined category of investors who believe in long-term investments. Thus, by all means you may consider mutual funds as a safe and a convenient option over real estate.