Investment

• Investment can be defined as the act of spending funds with the expectation that related future proceeds will result in a financial gain. For most investors, this is the main purpose of investment and the higher the rate of return the more desirable the investment. Others might also wish to invest due to other considerations such as the need to protect value or to avoid letting funds sit around doing nothing, but profit is the main motive for investment. Both stock shares and real estate can be said to be producing profit if their values are higher than their purchase prices. Rate of return is calculated as being the difference between the old and new prices divided by the old price and is written as a percentage.
  
  

Real Estate

• Real estate can produce higher rates of return than stock shares in the short term but not in the long term. Real estates in use experience what is called depreciation, meaning that their values decline to their usage and consequential wear and tear. However, real estate, including housing, can also appreciate, to rise in value, due to increased demand. It is natural for consumer demand for housing to rise during the boom stage of the economic cycle and as their prices rise in accordance with demand, more people buy into them because they become seen as desirable investment. In time, this may result in housing being valued beyond their true worth, resulting in tumbling prices once demand drops.
  
  

Stock Shares

• Stock shares of individual corporations can collapse and fail along with the issuing corporations, but the stock market as whole outperforms housing in the long run. Over time, as the economy becomes larger and corporations become larger and thus more profitable, shares in their ownership become more valuable to investors. Furthermore, stock share owners can also earn dividends, the portion of the corporation's income distributed to its shareholders.
  
  

Long-Run Comparison

• No strict definition of short-run and long-run have been made, but in general, a period of less than three years can be considered short term and more than that long term. Real estate can outperform stock shares in the short run in terms of rate of return, in particular when the demand for real estate is high. But in the long run, stock shares as a whole outperform real estate because they boast much more consistent and persistent growth compared to real estate.