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Investing in Stocks vs. Real Estate - Which is Better? Part 2 - Diversification Print E-mail
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Personal Finance - Investing
Written by Ahmed Amr / Omie Ismail   
Tuesday, 19 January 2010 02:35
Article Index
Investing in Stocks vs. Real Estate - Which is Better? Part 2
International
Market Timing
Diversification
Mispricings
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Diversification:

Omie: Stocks allow you to diversify into dozens of industries to take advantage of a wide swath of growth. It also allows you to hunker down into resilient sectors when things start to look ugly. Look at energy right now, the economy is sluggish and we are looking at the prospect of a double dip recession (did we really come out of the first one yet?) and yet oil is fetching near $80 a barrel, nominally higher than anytime before 3 years ago. And areas like health care continue to see growth. In times with high interest rates, you can invest in debt free companies in technology that are only marginally affected or even invest in companies that do well when the economy tanks. With real estate, you can be geographically diversified, but for the average person if real estate is heading down, their property value is going with it.

Ahmed: Even diversified portfolios take a huge hit when the market tumbles. Oil is at $80, but it was $147. If you buy and hold a property, it really shouldn't matter what happens in the short run. If your financing is fixed and you are getting good cash flow from the property, you could care less if the value dropped 20%. As long the rent is coming in, it shouldn't make a difference. If you want diversification in real estate, you can always buy different types of properties. A high-end rental, a low end rental and even a small commercial space. I have never dabbled in medical office space but if you had some of that, you'd be doing really well right now.



 

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