Capital investments

Stocks or real estate?

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July 2022

In view of permanently low interest rates, many people are confronted with the question of how to invest their savings sensibly and securely. In order to sustainably accumulate assets over the long term and thus ensure financial independence in retirement, it is essential to invest in high-yield tangible assets at an early stage. When looking for suitable investment opportunities to build up wealth, stocks and real estate remain the most popular assets. The discussion about the advantages and disadvantages of the two shooting stars among the assets is often heated. In our blog, we present the opportunities and risks.

Asset accumulation with the help of tangible assets

Both stocks and real estate are so-called tangible assets. Unlike monetary assets, which exist as cash or are held in a bank account, tangible assets represent assets that have a concrete material use and exist in physical form. This can be a house, for example, or a stake in a company - which owns physical goods - in the form of shares. Unlike financial assets, which can lose their value due to inflation, tangible assets are safe investments because of their intrinsic material value and therefore offer a certain degree of protection against inflation. Although the value of stocks and real estate can also fluctuate and temporarily decline, real estate at least is very stable in value over the long term and is therefore predestined for retirement provision.

Stocks: greater risk due to strong fluctuations

As a direct stake in a company, the price of a stock and thus its performance is inextricably linked to the success and development of the company. For this reason, investing in stocks is anything but trivial - evaluating stock prices is a science in itself. In addition, stock prices fluctuate very strongly and do not develop in a linear fashion. The risk of a total loss in value cannot be ruled out either, as the Wirecard case shows. In addition, the value of stocks is strongly dependent on the economic environment. In the event of a poor economic outlook or sudden shocks, such as the corona pandemic, prices plummet quickly - investors need to be aware of this and be able to deal with it.

Unlike real estate, shares can be sold on the stock market at any time. The capital is therefore not tied up and can be liquidated if necessary. As a rule, however, experts advise against trading stocks in the short term, as this often leads to financial losses due to the strong fluctuations. Especially if long-term wealth accumulation is the goal, investors should build up a broadly diversified portfolio and hold it over a longer period of time. Thus, the greater liquidity of equity assets compared to real estate assets remains a rather theoretical advantage.

Real estate: stable value and low risk in the long term

There are numerous reasons for investing in real estate. In particular, owner-occupancy of an apartment or house pays off financially, as the current ACCENTRO Housing Cost Report shows. Independent of a rental relationship and the development of rents, owners benefit from the stable development of the value of their property. Unlike financial assets, so-called concrete gold is protected against high inflation because its long-term material value remains. With conscientious care and maintenance of a house or apartment, a strong loss of value is very unlikely. Buildable land is only available in very limited quantities, especially against the backdrop of the ecological turnaround - but the demand for housing is always there, regardless of economic conditions. So while sudden crises cause a sharp drop in the value of equity assets, real estate values are mostly unaffected. Particularly in Germany's metropolitan areas, there is nothing to suggest that demand for residential space will decline in the future - both land and buildings remain scarce commodities with potential for appreciation in the long term. It is not without reason that real estate is considered one of the oldest forms of investment in the world.

Even as a pure capital investment, investing in real estate offers many advantages. Unlike shares, a rented apartment guarantees a stable passive income. Although shareholders receive dividends, these are dependent on the success of the company and are therefore uncertain. Rental income, on the other hand, is largely independent of economic fluctuations and crises.

Differences in financing

In addition to the different levels of risk associated with stocks and real estate, another key difference is financing. While real estate is usually debt-financed, stocks are often financed exclusively with equity. When buying real estate, a loan is usually taken out that must be repaid over several years. Although the management and financing costs are initially higher when buying real estate, this should not be a reason for long-term investors to forego the advantages of investing their money and capital in that form of investment. Numerous studies and analyses prove the financial advantages. According to calculations by the market research institute empirica, real estate buyers are five times wealthier on average than tenants when they retire.

Conclusion: Real estate beats stocks

Although a balanced portfolio should certainly include some stocks, for people with the goal of long-term asset accumulation, there is hardly any way around investing in real estate. Not only the stable value development, but also the low risk speaks clearly for the investment in one's own property. Whether owner-occupied or as a capital investment, owners benefit from the large housing cost advantage or stable rental income. If you are interested in buying real estate, we at ACCENTRO will be happy to advise you and assist you as a reliable and experienced partner throughout the entire buying process. Find your ideal real estate property now.

Further readings

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