Why the Real Estate Market is Less Volatile Than The Stock Market

The stock market for the longest time has been a favored and loved investment among many Nigerians; however, the real estate market is the real gold. The stock market feature however has had the advantage of being known for the longest time that it has been rather difficult for it to be unseated as the most popular investment mode. Most popular isn’t however safest and most profitable.

 The advantages many believe the stock market has are also strong points of the real estate market, things such as security and liquidity. What many don’t however understand is that the real estate market offers many benefits that the stock market does not offer, benefits such as lower volatility than the stock market and less correlation with public market investment performance in general.

 What Makes Stocks Volatile

 Stocks are volatile mainly because of correlation and volatility. They are present in every investment type and help to create a distinction between private and public markets.

  • Correlation defines how the performance of one investment affects the performance of another one. Correlation compares investments against each other. Correlation can be positive, negative or no correlation at all. The extent of the diversification of portfolio is the extent to how far their correlation is.
  • Volatility refers to the size of swings – in either direction – in the value of a security and the risk of those changes happening. A volatile investment can experience changes in value that is spread over a large range of value. When volatility is properly diversified, a portfolio has a lower risk of loss in the event of poor performance from a given company, industry, sector, region, market, or otherwise.

There are several important differences between real estate and the stock market which make the former more stable than the latter.

  • There is a high efficiency in both stocks and real estate, however, the high level of efficiency of real estate creates the exact opposite effect that high efficiency creates in the stock markets. Real estate transactions are fewer and as a result of the low market concentration the costs are higher. Asides this, information about real estate transactions is not easily accessible. All of these things tend to make the lower levels of volatility. 
  • Real estate is less liquid than stocks. This means that there are few changes that are made to the value of the investments daily; this culminates into less variation in prices and consequently a stability of real estate greater than that of stocks.
  • The nature of the things that real estate covers also contributes a lot more to the stability of Real estate value. Real estate deals with hard assets which are assets that have the ability to run against inflation. The nature of land and its finite supply makes it a commodity that increases in value and appreciates with time consequently going against inflation.

  In conclusion, the real estate market is stable for all of these reasons and is a great choice to diversify your investment portfolio and compliment stocks. They are a great long term investment and offer great value for money long term. These reasons make real estate the go-to investment for investors looking to hold an asset in the long-term. It also makes real estate the best option for complementing stocks and introducing a measure of diversity into a portfolio.



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