So you have some significant funds to invest in and you’re hesitating between trading and real estate. Which one is the most profitable? Which one is the safest? Let’s find out what is your best option!
Real Estate: The King Or Not?
Real estate is considered by many as one the best investment you can make. The theory behind it is that it is a tangible physical asset that will always be in demand since everyone needs a place to live. It’s value usually rises at the rate of inflation and the same goes for rental prices. Therefore, if you bought a property and rent it out, you get passive cash flow every month while your house or flat is worth more at the same time. If you put it that way, it seems to be a no brainer as you get minimal risks, consistant cash flow and grow your net worth all in once. As a result, it is not a surprise that real estate prices have gone through the roof during the last century as so many investors got into it.
However, just like 2008 shows us, nothing is certain in the world of finances and real estate surely doesn’t espace these rules. Major financial crashes or technology breakthroughs can have an impact on every asset and that’s why you always hear to not put all your eggs in the same basket and diversify your investment portfolio. We know for instance that 3D Priting is a fast growing technology and that we can now ‘print’ houses. Some companies who are currently doing so claim to be able to do it for 5,000$ to 10,000$. This considerably reduces the building cost especially when you know that the process only takes 24h and therefore could have a major impact on real estate prices in the future.
Trading: Skills or Luck?
At first glance, online trading seems to be at the opposite side of the asset spectrum if you compare it to real estate. It is not passive, there’s no cash flow guaranteed and it is not a physical asset. It appears to also be a lot more risky as significant losses can occur quickly especially if you trade on leverage and the market goes against you. That uncertainty is what turns a lot of people off as it gives the impression that trading is like playing poker. And a lot of traditional investors would stop here and just go for real estate but we beg to differ.
Trading does involve a part of luck but much less than you think. It requires a lot of knowledge and skills that take time to develop. Understand the market you’re trading is crucial to make the right calls. You need to know about all the industries that can influence the prices of what you’re trading and you need to be able to perform technical analysis properly. If you want to be a day trader for instance, a lot of your trading decisions will be based on the indicators you are using to anticipate the next price move and make profits. You also need good financial skills and understand how much of your net worth you should put into trading and how much of that budget you should put into every trade, what is your profit target and your stop loss. That way you strongly minimize the risks of significant losses. It also demands strong emotional management as it can be a stressful activity. That having been said, top professional traders do manage do make very profitable returns from their activities.
In the end of the day, both real estate and trading can be profitable and are both risky as well, it’s all a matter of perspective. If you feel more comfortable and secure about that guaranteed cash flow and owning a physical asset, than you should go for real estate. If you understand finances and are able to develop great trading skills, have the discipline to stick to a plan you made and minimize your risks, trading can be really profitable and is most cases much more than real estate.