Right now is an interesting time to be considering new investment opportunities, but, with so many options, what is the right investment strategy? Should you keep your money in the stock market or consider real estate investments? What about crypto stocks?
The answer will depend on your circumstances, your goals, and your risk tolerance, but the first step, in any case, will be to look at the benefits and drawbacks of each.
Table of Contents
Stocks vs. Real Estate vs. Crypto Stocks: Which One Is the Best?
Traditional Real Estate vs Alternative Real Estate Investments
Stocks
The stock market is probably the first thing that comes to mind when you think of investing.
For many people, stocks act as an introduction to investing because the initial financial requirement is generally lower than other investments and most companies offer 401k Savings Programs based on the stock market.
Stocks are also liquid assets, making them a tempting option for those who want to invest but want to retain access to their cash-if needed. They're also a great choice for anyone with an employer-sponsored retirement account.
There are a few different ways to invest in the stock market, depending on how much time and effort you want to spend.
If you have the time to research and assess them, you can choose to invest in individual stocks. You can do this through a broker, or a brokerage company that allows you to buy and sell securities (or stocks) on the stock market.
If you don't have much time and want to take a more passive approach to managing your stock investments, you have a few options:
Index funds: One option is to invest in index funds that track a stock index like the Dow Jones Industrial Average (DJIA).
Exchange-traded funds (ETFs): Another option is to invest in ETFs, which are index funds that can be traded on the stock exchange.
Robo-advisors: The robo-advisor is another "hands-off" option that has gained significant popularity in recent years. Robo-advisors act as brokers and manage your funds automatically according to your risk-tolerance level and investing goals.
PROS
Potential for great returns: Over long periods, the stock market tends to bring sizable gains.
Easy access: You don't need a ton of capital or experience to get started.
Liquid: Your money remains easy to access (unless in retirement accounts where there are penalties for early withdrawals).
Beats inflation: Historically, stock market returns have averaged 10%, while inflation has been around 3%.
CONS
Returns are not guaranteed: There are many variables at play, and stocks can drop in value, so you should never invest more money than you're willing to lose at any given time.
Time: If there are economic down periods, it may take a long time to see returns on your investment. So you must be prepared and have sufficient capital to hold on to your investments during down periods (assuming you have invested in high-quality stocks or index funds)
Volatility: Watching stock prices rise and fall can be stressful. Aggressive stock investors should be prepared to lose money without reacting emotionally.
Crypto Stocks
In barely more than a decade, cryptocurrencies have seen an extraordinary rise in value and created an immense amount of wealth for early crypto adopters. In fact, over the last five years, Bitcoin’s ROI was 70.16 times higher compared to the average of five major indexes.
The crypto industry, in general, has also seen a massive amount of growth, with new companies looking for their share of the market and established companies jumping on the blockchain bandwagon. Some of the top crypto stocks include:
Coinbase Global (NASDAQ: COIN): Coinbase is a popular platform where you can buy and sell cryptocurrencies like Bitcoin, Ethereum, and Cardano.
Square (NYSE: SQ): This popular payment platform started allowing users to hold cryptocurrency in 2017.
Hut 8 Mining (TSE: HUT): This company mines Bitcoin using sustainable energy and maximizes yields for its shareholders by offering Bitcoin loans.
There are also Crypto Stock Index funds such as Bitwise. These index funds focus exclusively on investing in and holding crypto and blockchain-related companies.
As more companies adopt blockchain technology, the opportunities in this asset class also grow. Depending on your investment style, crypto stocks could be a beneficial addition to your stock portfolio.
PROS
High risk/reward ratio: Since crypto stocks are influenced by the performance of cryptocurrency, new technology adoption, and changes in regulations, many investors hope to see big profits from crypto-related stocks. But there can also be significant risks.
Easy access: Like traditional stocks, crypto stocks tend to have a low barrier to access. Investors can make crypto stock investments starting with small amounts of money. (Note: Crypto stocks require having a crypto wallet to save and store a record of your investment.)
Access to crypto markets with less risk: Crypto Stock focused Index Funds are starting to appear. These funds utilize a diversified approach of buying, selling, and holding a variety of best-of-breed Crypto Stocks.
CONS
Volatility: Cryptocurrency is still a relatively new industry, which means a certain amount of volatility comes with the territory. Crypto's wild market fluctuations can be hypnotizing, but not everyone wants to endure the stress of owning cryptocurrency outright. Investing in crypto stocks means that your investments are influenced by the rise and fall of cryptocurrencies and related technologies, but not exclusively.
Security issues and government regulations: Cryptocurrency is still in its "Wild West" phase, and that means there’s still a risk of scams and hackers since it's not fully regulated yet. Government regulations or security innovations could have a major impact on any stock investments connected to the cryptocurrency market
Real Estate
Investing in real estate can be a great way to put your money to work for you.
If the initial cost isn't a deterrent to you, you can choose to go the more traditional route of investing in residential properties or commercial real estate.
While they might be a lot of work, traditional real estate property can provide you with a monthly rental income, offer tax advantages, and tend to be good long-term investments. They also allow you to get into real estate investing with borrowed money while incurring relatively little risk with mortgage debt.
PROS
Tends to appreciate: As a general rule, well-considered real estate investments tend to appreciate over time. Of course, this is not true 100% of the time, and many factors, including time and maintenance, will make an impact on your return.
Tax advantages: The exact details will depend on where you live, your tax bracket, and other variables, but between a boost in tax deductions and tax credits for first-time homeowners or adding green upgrades, this can make a major benefit.
Steady income: Rental properties can generate recurring passive income.
Diversification: Real estate is thought to be a good way to diversify your investment portfolio because it’s an asset class based on tangible assets, not related to the stock market.
Keeps up with inflation: Real estate tends to be a good hedge against inflation
Gives you control: Traditional real estate investments let you have some direct control over how well your investment does in a very hands-on way.
CONS
Property management: Traditional real estate property investments require that you take care of the property or pay someone else to.
High transaction costs or management: Investing in real estate can come with many added fees, including hefty closing costs.
Initial investment: Purchasing traditional real estate property for investment usually requires having a sizable amount of money to purchase.
Illiquidity: Traditional real estate Investment properties keep a lot of money tied up.
Ongoing expense: Rental properties and other real estate investment properties require ongoing maintenance.
If traditional real estate ownership is not for you, you might consider investing in a reputable TSX-listed commercial real estate management firm that allows you to reap very similar benefits to having a portfolio of actual real estate properties with less risk and more opportunity for diversification for less money. Companies like these are known as real estate investment trusts (REITs), and they allow you to reap the benefits of real estate investing without having to turn yourself into a property manager.
REITs can have significant management and service fees attached, however, and do suffer from a certain level of volatility. There are also alternatives to REITs on the market, such as real estate mutual funds, promissory or demand notes, real estate crowdfunding, and real estate exchange-traded funds (ETFs).
Traditional Real Estate vs Alternative Real Estate Investments
Real estate has long been considered an attractive investment. The concrete nature of real estate assets appeal to many investors as a way to build solid wealth that can be passed down through generations.
Still, investing in a physical property is a big decision that many people don't want to make for one reason or another. Maybe you don't have the time or inclination to manage a property, or maybe you want to keep your money liquid. Even if you already own a home and would like to benefit from the growth of the real estate market, you may not want to invest in another property for the same reasons.
Luckily, there are plenty of alternatives to traditional real estate that are far less labor-intensive than buying a property. Examples include:
Real Estate Investment Trusts (REITs): A real estate investment trust is a company that owns or operates real estate to generate income.
Real Estate Partnerships (RELPs): Real estate partnerships occur when two or more investors work as a team. They can take many forms.
EquitySlice 10% Income Investment Funds: Promissory Senior Notes are a type of loan that typically have a high, fixed rate of return.
