There are several ways one can acquire wealth, including investing in real estate and the stock market. While real estate has its advantages, investing in the stock market may be the way to go for people looking to get more bang for their buck.
Many homeowners talk about the benefits of owning real estate. However, there are several disadvantages. Real estate ties people down, the gains aren't always what they seem and it requires a significant amount of money up front.
Managing a property from a remote location isn't as easy as you may think and might require hiring a professional. Second, when discussing the gains that come from real estate sales, almost no one takes into account the amount of money spent, while owning the property, on: taxes, insurance, maintenance, utilities, mortgage loan interest, etc. If the amount of money spent on these expenditures was subtracted from the "gains" in a sale, there may be no gains at all. And, of course, don't forget the down payment for the property and closing costs. Even with an FHA loan, they can still add up to a hefty chunk of change.
On the other hand, investing in the stock market doesn't tie people down, the fees are relatively low, and it doesn't require a large investment up front. Shares of a company, mutual fund or ETF are digital. To know their worth, all that is required is a computer. Unlike real estate, stock market investors can live anywhere without having to worry about managing their investment - it can be done anytime, anywhere, online.
Even better, the expenses are much lower than real estate. They only include trade commissions (if any), an expense ratio (if any) and taxes on capital gains and dividends.
The best part is if the stock investments are held in a Roth IRA, you won't have to pay any taxes on your gains, dividends or withdrawals when you retire. I don't know about you, but tax-free income sounds pretty fantastic to me.
Finally, investing in the stock market doesn't require tens of thousands of dollars. You only pay for the worth of the shares you buy, which can be as low as a penny, and any commissions or fees charged by the broker - that's it.
Real estate is a good investment if you can afford it. Many people think their homes are investments. But they're wrong; a home is a place to sleep and live. Investment properties, on the other hand, can be very lucrative. However, if you're looking for the most cost-effective way to build wealth, you can't beat investing in the stock market. It doesn't tie you down, the expenses are low and it doesn't require a large output of money.
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