Real Estate vs Gold vs Stocks. Would you like to know which stands to be the Best Investment Option?
To get a clear picture of this, you’ll first have to analyze both the advantages and disadvantages of investing in these options. Choosing the best investment option is not a cakewalk, you might walk through lots of questions and perplexions.
In a motive to clear your doubts and queries, we have rounded off the important benefits and challenges you will have to face whether you invest in real estate or gold or stocks. Here we go.
Contents
Investing in Real Estate
Investing in real estate properties is an ideal choice. But still, it’s good to be aware of the disadvantages of real estate investments in India. Below, we’ve curated the crucial pros and cons, read it before you make a decision.
Value Increases Over Time Due to some activities in the purchased plot/flat, the growing local economy, trends in the real estate market, and other criteria, property value increases over time. The appreciations in real estate outperform other investment options like shares or mutual funds or gold due to economic downturns, wear-and-tear, etc. | Exceeding Tax Benefits Real estate investors need not pay self-employment taxes on account of rental income. Claim deductions citing reasons such as income level, mortgage rates, property registration charges, long-term capital gains, and so on. | Generates Passive Income By renting out to tenants, and enrolling in RELP, real estate properties can generate consistent income flow. The rental amount can be used for settling mortgage, property tax, insurance, maintenance, and others. |
| Leverage the Borrowed Money When you cannot afford a property or construction charges with full payment cash, you can borrow a variety of loan options from banks or other non-banking lenders. By choosing a conventional financing option, you can purchase a property by making only a minimal down payment. | Inflation Keeps Up with the Pace Real estate properties are tangible assets that appreciate over time. With the increase of price in goods and services due to inflation, the value of real estate properties may also increase. Property worth 1 lakh rupees increases by 50 thousand rupees by inflation. Also, rental income increases due to inflation. | Builds Equity A property bought with a mortgage can be rented out to tenants. So, every month the rental income can be used to pay your loan amount. You buy a property using a loan of 20 lakh rupees, rent it out to a tenant and use the rental amount to pay your mortgage. By the time your tenure period ends, your rental income will have the major part paid for the mortgage. |
Cons of Real Estate Investment
- Managing down payment, rental income, maintenance, selling, everything can be challenging
- Until the full mortgage is paid, you’ll not have full ownership rights on the property
- Tenants can be problem-creators, need to choose them wisely
- Selling a property includes a lot of formalities
- Changes in Government regulations, and market volatility can cause huge impacts
Also Read – Why Real Estate Investment is Better than Gold Investment
Investing in Gold
For ages, gold seems to be a highly desired and wealth-generating commodity in the Indian household, where people like to invest. Though, it includes both benefits and challenges. Here, we’ve outlined the advantages and disadvantages of investing in gold to help you make the right decisions over investment.
Pros of Gold Investment
| Invest in Mutual Funds In India, there are many mutual fund options to invest in gold. You can pay a specific amount on a monthly or weekly basis and by the end of tenure, it generates a huge amount with interest. You can use the sum of the amount for gold purchases. | Hedge against Inflation and Economic Uncertainty During inflation, gold prices tend to remain relatively stable, which can provide a hedge against inflation and protect investors from losses even if currency rates decrease in the global market. | Diversify Portfolio Liquidity Gold is a peculiar asset that can easily be converted into cash as and when required. Investing in gold can help on reduce overall portfolio risk by diversifying investments across different asset classes like stocks and bonds. Adding gold to a portfolio can help to reduce volatility since the price of gold is not necessarily correlated with the price of other financial assets. |
Globally Accepted Currency Gold has global appeal and can act as a currency hedge, a universally accepted asset that can be traded for any currency, which means that it is not affected by fluctuations in a specific currency’s value. This makes gold an attractive option for investors looking to diversify their investments across different currencies and countries. Can also be used in the form of currency, helping exchanges. | Provides Stability Investing in gold can provide a sense of stability to investors. Unlike other assets, gold can be held physically, which means that investors can own it outright and have complete control over their investment. This can provide peace of mind to investors who are concerned about the stability of their investments, particularly during times of economic turmoil. | No Registration Costs Unlike other investment options, gold does not require any paper documents to be submitted or registration charges. Buying and selling gold both are easy while investing in gold. Other than the charges for gold, no other charges will be incurred for registration and such. |
Cons of Gold Investment
- Do not generate passive cash flow
- Storing gold can be painful due to security concerns
- The price of gold can be volatile. It can decrease when stock prices increase
- The resale value is low with fewer return rates. Cannot be sold for the same price you bought, includes costs for wear-and-tear & usage
- Includes a maximum of damages and labour costs with an increase in the buying cost
Also Read – Stocks vs Real Estate. Which One Wins
Investing in the stock or share market holds both potential benefits as well as disadvantages. As an investor, you must weigh the pros and cons before choosing the stock market as your investment option.
Transparency by Authoritative Groups The stock market is regulated by authoritative groups like SEBI in India. They make rules for how the market works and make sure companies follow them. They also make sure that the market is fair and protects investors’ rights. So, when people invest in the stock market, they know that their money and rights are protected by these groups. This makes investments safer and gives investors confidence in their choices. | Ownership Rights When someone buys even one share of a company, they own a small part of the company. This means they have ownership rights and share their opinions on important decisions that affect the company’s direction. This might seem small, but it’s true and sometimes, shareholders have been able to stop company leaders in decision-making that could hurt the company or its investors. | Diversification Benefits The stock market offers different investment options like shares, bonds, mutual funds, and derivatives to suit investors’ financial goals and risks. Investing in a variety of stocks reduces portfolio concentration and helps to mitigate risks. A diversified portfolio can leverage growth in different sectors of the economy and result in a profit, even if some stocks lose value. Stocks are also highly liquid assets that can be bought or sold quickly, without transaction costs, unlike other assets like real estate or long-term debt investments. |
| Seamless Trading with Tech Advancements Technology has made things easier in many areas, including the stock market. Now, with the help of technology, people can easily buy and sell stocks without the hassle of pen and paper. Mobile apps make it easy to buy or sell stocks in a specific company. There are also platforms that help investors track the profit and loss of specific stocks, which helps in the decision-making of the stocks to invest in. | Flexibility in Investing For people new to the stock market, it can be risky, so it’s best to start with smaller investments. The stock market has options for smaller investments, like small-cap and mid-cap stocks that aren’t too expensive. One good thing about buying stocks directly is that you can do it whenever you want. You don’t have to invest a certain amount every month like you might with other investments. | Hedge against Inflation The goal of investments is to secure our financial future, but inflation can erode our gains over time. It’s important to regularly track inflation because if the rate of return on investments is similar to inflation, gains will be nullified. Ideally, the rate of return on investments should be higher than inflation. The stock market and benchmark indexes have consistently outperformed inflation, with annual returns of around 10% even when inflation is around 3-4%. |
- Volatility in price during market fluctuations
- Natural calamities, political turmoils, terrorist attacks, etc. can put you at risk
- Results cannot be predicted/guaranteed
- Strategical thinking is required to decide on the right stock/share market to invest which takes time
- Frauds and scams can cause financial losses
- Includes high transaction charges
Winding Up Our Words on Which is the Best Investment Option
Depending on the nature and type, every investment option has its own advantages and disadvantages. Still, real estate investment stands a step ahead when compared to other investment opportunities.
If you’re looking for a tangible lucrative asset that acts as a passive income generator benefiting you in the long run, then investing in real estate pays off. You can just pay 10-20% of the down payment and avail of a mortgage for the rest of the payment. In addition, by renting out your properties to tenants, you can get 3/4th of your mortgage paid.
When asked for a suggestion from us, we would say, real estate properties can be the best investment option, where you can own your dream home rather than spending a wholesome amount on renting/leasing a house!