Real Estate vs. Stocks: Where Should I Start?

Joe Barbieri, MoneySense's Approved Financial Planner, answers your questions about getting started with stocks and real estate so you can reach your financial goals.

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Vin Heney

When it comes to investing, it can be hard to know where to start. 

This is especially true for millennials, who might be short on savings, and who often haven’t been taught about investment options. In this article, we compare two of the most common ways to start investing — real estate and stocks.

To get a true insider’s perspective on the ever-shifting landscape, we turned to MoneySense Approved Financial Planner, Joe Barbieri — known in the biz as Joe The Investor. Barbieri is a Toronto-based homeowner, stockholder, and financial guru to a growing number of young investors.

Start with Debt

Before weighing investment options, it’s always advisable to first examine your debt situation. While debt isn’t necessarily a bad thing, it certainly can be. Barbieri’s rule of thumb is to get rid of any ‘expensive debt’ as a first step.

“My threshold is 6% or more. And more than 10% interest rate on your debt? Kill it,” says Barbieri. “Because whatever else you do, you will not make 10% every year, guaranteed, on average for the rest of your life. It is very, very hard.”

So what if you’re left with just cheap debt? Or better yet, no debt? Then it’s time to weigh your investing options, which is exactly what many millennials are already doing.

“A lot of millennials are new to investing, but surprisingly a lot of them aren’t,” says Barbieri. “I find a lot of millennials are really savvy, a lot more savvy than prior generations, which is not something you hear, but some of them are very entrepreneurial, very on top of the fees, very conscious of what’s going on in the industry.”


Let’s Talk Stocks

So your debt is under control, but you’re priced out of the housing market? Join the club. A lot of millennials in this situation turn to stocks. 

The advantage with stocks is that you can get started easily and with any amount of money. Want to buy $100 worth of cannabis stock? You can do it on your own — and with super low fees — on a platform like Questrade. Ready to contribute $1000 to your TFSA? You can buy low-fee ETFs from your phone on a platform like Wealthsimple. Contrary to popular belief, buying stocks is mad easy, regardless of if you’re picking them yourself or relying on a robo-advisor. I know because I do it. 

But despite the ease of entry, buying stocks means you’re left in the dark. 

“You can’t really find out what’s going on with your stocks, because you’re not running General Motors. You’re not on the board of IBM. You’re not on the board of CIBC,” says Barbieri. “If there’s some shenanigans going on, you can’t do anything about it, you take whatever they give you as a dividend. And if you don’t like what they’re doing, too bad. Sell the stock. That’s your option.” 

So unless you’re the owner of a publicly traded company — ya you’re not — you have no way to impact your investment. You’re either in and hoping for the best, or you’re out. 

Real estate, on the other hand.

Let’s Get Real

It’s no secret that getting into real estate is more complicated than buying a stock or opening a tax free savings account (TFSA). That said, the appeal with real estate is that you’re investing in something tangible.

“A lot of people say ‘I like real estate because I can see it, I can touch it, I know where it is, and I have control of it.’ If something needs to be fixed, I want to know what’s going on. I want to choose to either fix it myself or hire somebody. You see everything, it’s transparent.”

The kind of real estate investment we're talking about — where you actively manage and directly own a specific piece of property — is different than a real estate investment trust (REIT). With a REIT, you’re invested in real estate, but it’s spread across a portfolio of properties that you have little or no connection to. The barriers to entry are considerably lower than paying a 20% mortgage down payment, and is more similar to buying a mutual fund. Everything is done by somebody else and you get the payout, which means no stressful tenants or management required.

“With real estate, you have more choices to affect what the outcome is. You can fix up a place yourself, or you can just keep it simple with other passive alternatives. You can make those choices. You have options. Control is big. Transparency is big. Ownership is big. That’s what a lot of people buy it for.”

So real estate and stocks both have their pros & cons as investment options. Stocks are easy and can be relatively as low-risk as you want, but you’ll never have the same sense of ownership. Real estate is more complicated and historically had a higher barrier to entry, but that's not necessarily true anymore.

At Homebound, we strive to give you the best of both worlds: an easy way to find affordable and passive investment options that keep you connected to the actual locations you believe in.

Homebound makes it easy to find alternative ways to invest in Canadian real estate.

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