16 November, 2008

Where should an investor put his spare money- in the stock market or in real estate? This question can keep cropping up in the mind of investors from time to time. Most people you will talk to will advise you to invest your hard earned money in the real estate as the risk reward ratio is much more favorable in the real estate compared to stocks.

Earlier investing in real estate was out of the reach of most individual investors as huge sum of money was needed which was usually out of the reach of a salaried person. With the new lending norms and easier availability of finance from banks and institutions real estate investing has become a reality for investors and real estate investment is a must for any balanced investment portfolio.

Rationale of investing in real estate:

Real estate investment helps in diversification, yield enhancement and hedging inflation. If you have enough endurance to withstand the current interest rate turbulence, it may be the right time to invest in your own house. Property prices are at decling and becoming more affordable.

Ever increasing urban population through high birth rate and migration from hinterland will keep the demand for residential and commercial real estate strong. With Indian economy on a growth trajectory this demand is going to increase in the coming years.

Investment strategies and options:

Not many individual investors have the kind of money required to buy expensive real estate all by themselves. That’s where real estate mutual funds come into the picture. Real estate mutual funds and real estate trusts provide an opportunity to own a part of the property that would otherwise be unaffordable. It is the responsibility of the fund manager to evaluate the asset, maintain the property, deal with tax implications and rent collections.

Investing in stock markets:

The current global meltdown has made investors wary of investing in the stock markets. The markets have wiped away huge money, wiping out the life time savings of small retail investors. The rescue plans and bailouts by governments will take a long time in stabilizing the global economy and the stock markets. Volatility is an accepted and inseparable part of stock market investments.

For stock market investors it is wise to start investing early as you can benefit from the power of compounding. People unfamiliar with the stock markets or those who do not have the time and resources to research the stocks should invest with professionally managed mutual funds.

In the current scenario, experts advise that investors keep away from the turbulent markets. Do not indulge in buying stocks that has hit rock bottom, or contemplate selling at a loss. It is believed that the stock markets will rebound in full vigor and investors must wait for it.