New and experienced investors continue to debate where they should invest their hard-earned money in the stock market vs. real estate. To help you come to your own conclusion, we’ve rounded up the pros and cons for each, what past market trends show us, and why long-term investing is the most important investment strategy regardless of where you decide to put your money.
Investing in Stocks vs real estate
Purchasing a stock essentially means you are buying ownership in the company. If the company does well, you profit. If it doesn’t, there’s a chance you’ll lose the money you invested. According to the S&P 500, the stock market had an average annual return of 10.31% since 1957. This percentage serves as a benchmark for U.S. stocks only.
A long-term investment approach with a diverse portfolio is recommended to lower risk and increase potential return on investment. Keep in mind, that investing in the stock market is a marathon, not a sprint. Don’t panic when certain stocks decline. Staying in it for the long haul will eventually pay off. To kick off the stock market vs real estate debate, let’s dive into the pros of stock market investing.
Pro #1 Less Hands On = Less Work
Investing in the stock market can be easy. It demands less time than other types of passive investing, doesn’t require a lot of knowledge or expertise, and has little to no management on your end. If you like the idea of someone else, like an investment expert or firm, managing your stock market portfolio, you can hire a financial advisor. They will put your money into funds based on several factors, including age, income, retirement goals, etc. Not having to spend extra time or worry about the details of which stocks to invest in and for how long is an appealing route for many new investors.
Pro #2 Flexibility & Lower Fees
Want to get out of or trade a stock? Transaction costs online are less than $5 and monies can be moved almost instantaneously to different funds. Since they are so easy to move or sell, they provide flexibility to reallocate your money.
Pro #3 More Diversification Than Real Estate
With the stock market, you can invest in different companies and business sectors. This is called diversifying your portfolio, which is known for reducing risk. If one sector declines and another rises, you’ll likely make up any money lost on an underperforming stock. Use the knowledge and experience of a wealth advisor to create a diversified portfolio and lower the risk of losing the money you invest.
Mutual funds are the most common type of passive investment. On average, a return of 10% is expected, however, several funds average or exceed a 12% return. Again, utilizing an investing professional can help find the right mix of mutual funds to invest in.
Pro #4 Buy Stocks in Products You Like or Use
Investing in the stock market can also be fun. Are you excited about a certain product or something you use every day? Buy stock in a company or product you’re passionate about and profit from its success! However, choosing where to invest your money can turn into an emotional decision, instead of a logical one. Be sure to do your due diligence and consult with an expert to ensure it’s a wise investment with a greater return versus risk.
Pro #5 Potential for Quicker Returns
When investing in real estate vs stocks, the latter has proven to outperform other passive investments in the short run. With stocks, you could see a return on investment within a year, whereas real estate tends to grow (or decline) over long periods. However, “predicting” the stock market, or which stock will experience short-term growth is nearly impossible, which makes it potentially risky. While the lure of greater potential for a quicker return on investment (ROI) may entice you, don’t forget to account for the risk involved.
Pro #6 More Liquid Assets
Another benefit to investing in stocks vs real estate is that with stocks you can get out with a click of a button. Don’t like how your investment is performing? Simply sell the stock or stop putting money into that particular stock, and invest in a better-performing stock or put that money into savings.
Now that we’ve covered the pros of investing in the stock market, let’s go over the cons
Con #1 Lack of Control over managed funds
While some investors like saving time by having others manage their investments, others see this as a disadvantage. The risk comes from a fund being poorly managed, which is something you don’t have much control over. Unless you spend a significant amount of time researching and educating yourself on the intricacies of specific funds, (which negates the advantage of using an expert to save time and energy), lack of control may be reason enough to invest your money in other passive investments like real estate.
Con #2 Not a Tangible Asset
While an advantage of stocks is that they are liquid, a disadvantage is that they are not tangible assets. Meaning, that if your money is in a stock that suddenly plummets, you could be left with nothing. With a tangible asset, like real estate, even if the market drops, you still own a tangible asset, with built-in equity, and all your invested money won’t be lost.
Con #3 If the Stock Drops, Your Profits are Lost
The stock market can be volatile at times. Sudden changes in the economy can impact entire sectors or companies. If there is an unexpected drop, your money could be lost instantly. On the one hand, passive investors can take more risks and potentially make a lot of money in a short time. On the other hand, the risk of losing a lot of money is also greater. High-risk stocks going bad often account for many investors facing financial crises and even bankruptcy.
Con #4 You Pay Taxes on Profits When You Sell
Let’s say you invested $20,000 in a stock and it is now worth $100,000. When you sell your shares, you are required to pay taxes on the money you’ve made, in this case $80,000. It’s also important to understand that the IRS taxes short-term and long-term gains differently. How much money you pay on capital gains depends entirely on how long you hold onto your shares.
Short-term gains (investments held for less than a year) are taxed as “ordinary income” and must be applied to your taxable income for the year. How much money you make annually will place you in a certain tax bracket, and give you an idea of how much you’ll be taxed on capital gains. For example, if you make $65,000/year individually, you are expected to pay taxes on 22% of your income ($7,599). Avoid paying a high tax rate with long-term gains.
Long-term gains (investments held for more than a year) have a substantially reduced tax rate. This is to encourage investors to buy and hold on to stocks for a longer period. For example, if your annual salary is below $38,600, you fall into the 0% capital gains tax bracket. Individual filers earning between $38,601 and $425,800 annually, will be taxed 15% on capital gains. Because long-term gains have such a reduced tax rate, it’s easy to see the importance of holding onto investments long-term.
Investing in Real Estate vs stocks
Next, we’ll talk about the reasons real estate is better than stocks. Just like any investment, your risk versus expected returns should be carefully assessed when purchasing any type of investment property. Let’s dive into the pros.
Pro #1 money is Secured by a Tangible Asset
Unlike the stock market, purchasing real estate has the advantage of being a physical asset. Holding onto a physical asset like property allows it to appreciate (increase in value) over time. If you are buying a rental property, you can leverage your investment and maximize your cash return, meaning you can invest with less money down. For example, if you invest $75,000 in real estate, you can qualify to buy a property worth four times that amount. With home values rapidly rising, investors are enjoying higher appreciation rates.
Pro #2 Higher Appreciation Potential
Like stocks, real estate investors are encouraged to hold onto a rental property for the long term. However, the advantage of investing in a physical asset, like an investment property, is its ability to also appreciate over time. Even with the ups and downs of the real estate market, there is really no comparison for the appreciation potential of a tangible asset.
Pro #3 Protection from Inflation
Investing in real estate vs stocks offers risk protection as your mortgage payments do not increase with inflation. But, home and rental prices tend to rise with inflation. This means that as your property value rises and your rental rates increase, your mortgage remains the same, which allows for greater monthly cash flow potential.
By choosing to invest in real estate vs stocks, you’ll be capitalizing on an investment that doesn’t depend on the highs and lows of the stock market. While this is a huge advantage for real estate investors, it’s still critical to perform due diligence and run the numbers before deciding where, when, and how to purchase a property that ensures a decent ROI.
Pro #4 More Control Over Your Investment
Private lending offers much more control over your investments. You get to decide, who you invest with, the length of investment, and the rate of return. If you are purchasing a rental property, you are in control of what and where you buy, along with any improvements that will increase the value or rental rates. You get to decide which expenses your tenants pay and have a better idea of how much monthly cash flow to expect.
Pro #5 Generates Cash Flow in an Economic Downturn
One of the biggest advantages of investing in real estate vs the stock market is that your profits aren’t instantly lost when the stock market drops. In addition, with some private lenders, there is up to 50% equity already built into your property, so you won’t risk losing your entire investment. Plus, if you own rental property, you’ll still be collecting rent from your tenants, giving you consistent monthly cash flow regardless of stock market fluctuations.
Pro #6 Multiple Tax Advantages
One of the key reasons real estate is better than stocks is the many tax deductions available to property owners. Qualifying tax deductions include interest, depreciation (loss of value over time aka wear and tear), and property expenses (repairs, maintenance, insurance, property management, furnishings, etc.).
Investors can also use a 1031 exchange, which allows investors to “defer” paying capital gains taxes when selling an investment property, by using the profit gained from the sale to purchase another “like-kind property.” Investors who use this method can expect roughly one-third of capital gains to go toward taxes, instead of their entire profit. Keep in mind the process of a 1031 exchange can be complicated, which is why most investors seek professional help to ensure nothing falls through the cracks.
If you want to learn more about 1031 Exchanges, our article, How to Do a 1031 Exchange: Rules & Definitions for Investors, provides a more detailed breakdown.
We’ve covered the pros of investing in real estate vs stocks, so now let’s cover the cons.
Con #1 Selling Property May Take Longer Than Anticipated
One drawback to owning real estate is that it’s not liquid. Meaning, your invested money could be tied up for months until you’re able to sell your property. If you are thinking of selling your property, keep in mind that timing is key and it may be worth waiting for a rise in the market when homes or rental properties are in high demand. Although not as exciting or fast, RealWealth focuses on long-term turnkey investment property strategies (usually about 10 years), because it is far more profitable. Our greatest asset in long-term investing is time. The longer you can hold onto a property (assuming it’s a wise investment from the start), the more money you’ll make.
Con #2 More Real Estate Commissions & Fees
When you decide to sell your investment property, closing costs, commissions, fees, and taxes can add up and drastically decrease your ROI. Do the math. If selling your property doesn’t produce a positive return, consider holding onto the property until it does.
Con #3 More Hands-On = More Work & Time
There’s no question that owning real estate or a rental property requires more hands-on work and time. Keeping up with maintenance demands, finding quality tenants, and accounting for months of potential vacancy all add time and often stress to property owners. If you don’t have the time (or desire) to do hands-on work or deal with tenants, hiring a property manager or looking into other investment opportunities may better suit your lifestyle.
Real Estate Versus Stock Market Returns
As we compare real estate to stock market returns, keep in mind that these are two very different investment types. Historically, stocks have outperformed real estate over the past few decades. However, stocks tend to be more unpredictable and it’s possible to lose your entire investment. On the other hand, home values tend to steadily increase over time. Regardless of where you invest your money, there is always risk involved and no guarantee of return.
What are the Average Stock Market Returns?
According to Macrotrends data, the S&P 500 has had an annual average return of 9.67% since 1994. From 2019 to 2023, the average yearly return was 15.36%. Don’t get excited just yet. If we look at average stock market returns by year, the numbers show a more volatile story. For example, in 2022 annual returns were -19.44%. In 2018, -6.24%. In 2008, -38.49%. In April 2025, annual returns were coming in at -13.73%. when someone chooses to invest in stocks vs real estate, they’ll need to cultivate a mindset that can weather the highs and lows of the market.
Does real estate outperform stocks?
From 1990 to April 2024, the broad U.S. stock market outperformed real estate by 1,325%, respectively, even with the stock market crashes. During that same time frame, real estate home prices quadrupled, rising by 308%. Keep in mind, timing matters.
From 2000 to 2009, amidst a terrorist attack and recession, the S&P 500 reported an average return of -1%. This period of time is known as the “lost decade.” While times were tough and millions of Americans lost or got out of all stock investments, this is only part of the story. In the 10 years before the 2000 stock market crash, the average return was a healthy 18%. Once again emphasizes the importance of investing long-term.
Timing to buy stocks vs real estate
According to the Federal Housing Finance Agency, since 2020, housing prices are up 57.13% while the S&P 500 is up 98.87%%. When it comes to real estate, location is key. Highly populated metropolitan areas like Dallas, Texas, and Jacksonville, Florida, have experienced significant increases in home values over the last decade.
What is a good return on rental property vs stock market?
Our expectations can only be predicted by how the real estate and stock market have performed in the past. This graphic by Longtermtrends clearly illustrates the trends for each market and can be a resource when you are deciding to invest your money in the stock market versus real estate.
Opportunity Zones: Why this Real Estate Strategy Might Appeal to Stock Market Investors
What is an Opportunity Zone in real estate?
Opportunity Zones or “Ozones” are low-income areas in the U.S. that are falling behind more affluent communities. To promote investing in these areas, local governments from each state have designated 25% of these low-income census tracts as Opportunity Zones.
To qualify as an Opportunity Zone, poverty rates must be at least 20%, with an average family income less than 80% of the area average. There are 8,764 Opportunity Zones approved by the U.S. Department of the Treasury (within the U.S. and its territories).
This government-sponsored program is an economic development tool designed to boost development and job creation in distressed areas of the country.
Why Opportunity Zones Are a Good Way To Get Out of the Stock Market
The good news for investors is that they can take money out of the stock market and invest in Opportunity Zones without getting taxed (for at least 10 years). To see the basic rules and detailed tax benefits of investing in Ozones, check out our article: What is an Opportunity Zone: Tax Benefits & More Explained.
final thoughts
Now that you’ve read through the pros and cons list for the stock market vs real estate you should have a better idea of where to invest your money. Both investment strategies come with risks. Key aspects are where, when, and how you buy investments, plus the length you hold them. In most cases, the longer you hold onto them, the lower your risk and the likelihood of a profitable return on investment.
If you are interested in investing in real estate and want to easily build a portfolio of turnkey properties, join RealWealth. Membership is 100% free, yes free, and gives you access to educational content, investor resources, including your own investment counselor, and connections to turnkey property teams selling single-family and multi-family investment properties in top U.S. markets. Learn more about how it works here.
