Majority of investors today view investing in the stock market equal to gambling in the casino. Therefore, they are more comfortable investing in real estate because it is a brick and mortar investment; One they can actually see and touch.
This is misconception. What if I told you that none of the Richest man in the world on the Forbes list became so wealthy because of investing in properties? Instead, all of them build their wealth because they owned shares in successful corporations.
Some might argue that Hong Kong Billionaire and property tycoon, Mr. Li Ka Shing is so wealthy because he owns many valuable properties in Hong Kong. But they are only half right. It is true that Mr. Li owns a lot of properties, but he did not own them directly. Instead, he actually own shares in companies that owned those properties.
Let’s zoom into 5 reasons why you should also start investing in stocks, especially you are a total beginner.
#1 They are Productive Asset that generates cash flow.
Firstly, you must understand that when buying a stock, you are not buying a piece of paper with its price going up and down. You are buying part ownership of a business. A Business is a productive asset which provide value to the society in terms of their products and services which customers are willing to pay for therefore generating cashflow for the business. This generated cashflow is then returned to the shareholder/investor.
#2 Start small. (Also allow room for beginner mistake)
Assuming you want to buy a house that costs $500,000. Usually it will require a minimum of 10% in down payment, which is $50,000. On top of that, you would also need to borrow $450,000 in mortgage to purchase the house. Imagine if you bought the wrong property. Not only will your $50,000 investment would be stuck! On top of that, you still have a $450,000 debt to service! How long would it take for you to clear that off your books? What a nightmare!!
Stock investing, however, does not require you to have $50,000 in capital to start off. It only requires $100. Even if you lose this $100 due to inexperience, it allows you to come back quickly and implement different strategies until you find the one that works.
Assuming you invested $100,000 in both property and stock respectively. An emergency occurs and you need the $100,000 immediately.
Highly likely that you will not able to get your full sum of money back from your property investment because in order to cash out quickly, you would very likely need to sell it at a huge discount. This is because the property market is generally illiquid.
On the other hand, due to high liquidity of the stock market, you can quickly liquidate your stocks at fair value to raise emergency funds.
Again, assuming you invested $100,000 in both property and stock respectively and you needed $20,000 in funds urgently.
For your stock investment, you can sell $20,000 worth of stocks to fund the emergency. However, for your property investment, you can’t sell away your toilet to get the $20,000.
#5 No Hassle
To buy a property, usually a few parties are involved. You need to deal with property agents, bankers, lawyers, renovators, etc. The more parties are involved, the more costs are incurred before you even make your dollar in profit from the investment. And lastly, you need to source for tenant and you would be praying that you are lucky to get a tenant who takes good care of your property. Imagine the hassles!
Stock investment however, you only need to have a stock trading platform. A broker is there to serve you only if required. You don’t need to have the broker if you don’t want to. You can buy and sell the stocks yourself using the trading platform. Don’t like the trading platform? Just switch to another one, at a very low, or close to no cost.
Disclaimer: All facts and opinions presented are for educational purposes only. This is not a recommendation to buy or to sell. The author involved in the writing of this message has no vested interest in the companies. Please consult a professional for expert financial or other assistance or legal advice.
This article was written by Team VIC
Team VIC is formed by experienced and well-trained individuals from Value Investing College (VIC). The team has been consistently studying the latest stocks market trend in order to focus on educating the layman on investment principles and techniques.