Investing in buy-to-let properties has always been a popular form of investment for many. However, the stocks and shares market offers investors a great potential for growth over a long period of time.
Both of these investments can certainly pose some risks – so which one should you consider?
Why equities (stocks)?
There are a number of benefits when it comes to investing in stocks. There’s the potential to earn higher returns compared to other investment alternatives, and these returns provide you with the ability to protect your wealth from inflation.
It’s also a great way to earn regular passive income, with many companies paying dividends to investors, either on a monthly or quarterly basis. Additionally, stock markets are open to trading on a minute-by-minute basis. This makes it easy to buy and sell stocks, offering a more liquid investment.
Why not property?
Investing in the stock market appears to be a better long-term investment than property. This is because an investment in real estate typically returns up to 4% annually, whereas the stock market offers 10% in annual returns.
Purchasing a house often requires multiple upfront costs, from finding tenants to household repairs. Becoming a landlord is a business in itself, ensuring any tenant questions and concerns are promptly taken care of.
Plus, it’s difficult to have a well-diversified portfolio when investing in physical buy-to-let properties. Diverse portfolios often perform a lot better over time than a single investment in one area or sector.
Average property investor vs. equity investor
The average property investor aims to build a vast portfolio of rental properties. The majority of economic activity and wealth is focused around London, however the housing stock is limited and now, incredibly expensive.
With rental prices soaring, housing is becoming less attainable and accessible to the average UK citizen. Landlords need to ensure their property assets are still a worthwhile investment. This means they are having to charge more to keep up with the current rental market prices, yet this is turning many people away.
Investing in the stock market comes with a lot less hassle, making high returns with less effort than if you were to invest in real estate. The average equity investor can start building a portfolio within minutes, and from the comfort of their own home.
Equity investing also outperforms property in relation to tax. UK stocks charge a stamp duty of 0.5%, but with overseas stocks, there’s no stamp duty at all.
With property however, the stamp duty would cost you 6% of the property’s value. Tax can be easily avoided when investing in stocks, especially if you hold these in an ISA.