How to compare the features of real estate, stocks, and mutual funds and find the best investment options

In this era of ultra-low interest rates and rising prices, it is becoming increasingly difficult to increase assets through deposits alone. Investment as asset management is becoming increasingly important for retirement funds and future security. However, there are various investment options such as real estate investment, stock investment, and investment trust, and many people may wonder, "Which one should I choose? This article discusses some of the most common investment options. In this article, we will compare the basic structure and characteristics of these typical investment methods, their respective merits and demerits, and sort out what type of investor they are suited for. Furthermore, we will consider how to find the right investment method for you, taking into account recent (2024-2025) market trends and the asset allocation trends of the ultra-high-net-worth class.

Real Estate Investment: Structure and Characteristics

Real estate investment is an investment technique in which real estate such as condominiums, apartments, single-family homes, and office buildings are purchased and rented or sold for a profit. The main sources of income are monthly rental income (income gain) and capital gains on the sale of the property. For example, if you purchase a condominium in the city center and rent it out, you will receive monthly rent income, and if the price of the property rises in the future, you can expect a gain on the sale. Although a large amount of capital is required to purchase real estate, it is possible to use leverage by taking out a bank loan (real estate investment loan). Once the loan is paid off, the real asset, the real estate, remains in your possession, making it a means of asset preservation. In addition, depreciation, loan interest, and maintenance expenses can be recorded as expenses and deducted from rental income to reduce taxes. It is also pointed out that in Japan, since group credit life insurance is purchased when loans are used, the outstanding loan balance will be repaid by insurance if something should happen to the investor, and this aspect can be used in place of life insurance.

Advantages: The biggest advantage of real estate investment is the stable income and maintenance of asset value. By leasing a property in a good location, you can generate regular rental income while minimizing the risk of vacancy, and expect a stable cash flow over the long term. With little daily price fluctuation like stocks, price movements are relatively slow even during market crashes, making it resistant to economic shocks. Another attraction is that real estate prices and rents also tend to rise during inflationary periods, functioning as an inflation hedge. Furthermore, loans allow investors to acquire large properties with little capital on hand, and the leverage effect allows them to pursue high yields. In fact, the estimated annual yield on a typical real estate investment is 0-10%, depending on the property and region, and if managed well, a high return can be targeted. In addition, as mentioned above, the tax-saving effect of recording expenses and the peace of mind of knowing that your assets will remain after the loan is paid off are also advantages.

Disadvantages: On the other hand, real estate investment has the major disadvantages of low liquidity,labor and cost. Properties are not easily converted into cash, and it usually takes several months to find a buyer and complete the contracting process before a sale can be made. Moreover, real estate cannot be sold only partially for cash, and there is less flexibility to withdraw funds in small amounts. In addition, property acquisition requires an initial investment in the range of several million yen to tens of millions of yen, which is a hurdle for beginners. Even after acquiring a property, there is still the hassle of rental management andupkeep, and if the property becomes vacant, there is the risk of " vacancy risk," which is the loss of income during the vacancy period. Repair costs associated with the aging of the property and measures against the risk of disasters such as typhoons and earthquakes (e.g., fire insurance and earthquake insurance) are also necessary. In addition, there are holding costs such as property taxes and city planning taxes. Although measures to deal with such hassles and risks have been established to some extent, it may be difficult without expertise andtime to spare.

Equity Investment: Structure and Characteristics

Stock investment is an investment in which profits are earned by buying and selling shares (stock certificates) issued by a company. When you buy shares, you become the owner (shareholder) of the company and can receive dividends or shareholder benefits depending on the company's performance. If the price of the shares you own rises above the purchase price, you will earn a capital gain when you sell the shares. As a rule, stocks listed on the stock market (stock exchange) can be traded at any time during the daytime on weekdays, and are characterized by their extremely high liquidity. In recent years, with the spread of Internet securities, it is easy to open an account and start trading with as little as a few thousand yen. In fact, even beginners can start investing in stocks with as little as a few thousand yen, and the procedures are simple, making it an easy way to get started as an introduction to investing. Another feature of stock investing is that there is a vast amount of data and analysis tools available on the Internet, making it an excellent environment for gathering information on trading and corporate information.

Advantages: The advantages of investing in stocks are their high growth potential and liquidity. Although stock prices rise and fall with the economy and corporate performance, they tend to rise steadily over the long term as the economy grows, and there is the potential for large returns in a short period of time. In particular, if you invest in stocks of growing companies or popular themes, capital gains of several times or even dozens of times the share price are not a dream. The ease of selling stocks (i.e., the ease of converting stocks into cash) is also overwhelming compared to other types of investments. During weekday trading hours, transactions are concluded immediately in the market, and you can flexibly sell only a portion of the shares to raise cash when necessary. The fact that it is easy to move funds in and out without having to tie up a large amount of money like real estate is a big advantage. Furthermore, there is a wide variety of investment targets, and you can reduce risk by diversifying your investments in various industries and companies in Japan and abroad, or enjoy supporting companies that match your interests. Since you can invest in a large number of stocks with a small amount, it is easy to diversify your portfolio and hedge risk by compensating for losses caused by one company's poor performance by investing in other stocks that perform well. In fact, stock investments are considered advantageous as a means of risk reduction because they allow investors to diversify into a variety of assets with a small amount of money.

Disadvantages : The disadvantages of investing in stocks are the high risk of price volatility and the knowledge and effort required. Stock prices fluctuate daily and can sometimes plunge by more than half in a short period of time. In particular, foreign stocks (such as U.S. stocks) have high volatility with no price limits, and there are even cases where the price of a stock can drop by half in a single day. This high volatility and high risk of loss of principal is a major concern for investors who are interested in stability. In addition, in order to make a profit, it is necessary to constantly check market and company information and judge when to buy and sell, which is not a small mental burden. It is difficult for beginners to decide when to take profits and when to cut losses (or hold onto losses), and this can be a hurdle for them. In addition, it takes time and effort to acquire knowledge in advance, such as analyzing individual company performance and financials, and studying industry trends. For busy people or those without financial knowledge, this information gathering and analysis work can be burdensome. In addition, there is no guarantee of the principal amount invested in stocks, and in the worst case scenario, the stock price may fall to zero due to the bankruptcy of the company in which the investment is made. Because of this high level of risk, it is a typical "high-risk, high-return" investment and should be approached with the possibility of large losses in the short term.

Mutual Funds: Structure and Characteristics

An investment trust (fund) is a financial product in which funds collected from multiple investors are combined into one large fund and invested in multiple assets such as stocks and bonds by a management specialist (fund manager). Simply put, it is a system of "entrusting the management of money to professionals," and by purchasing mutual funds, we are indirectly investing in various assets. There are a great variety of mutual funds, including domestic equity-type, foreign equity-type, bond-type, balanced-type (a combination of multiple assets), and REIT-type (real estate investment trust), with a wide range of risk/return and investment targets. The basic sources of income are dividends and interest distributions from stocks, bonds, and other assets held by the fund, as well as gains on sales of the fund due to increases in NAV (the price of the fund). Since the management of the fund is conducted by specialists at securities companies and investment management companies, detailed decisions on the selection of individual stocks and purchases and sales can be left to them. However, it should be noted that there is no risk at all, as the NAV will rise and fall due to market fluctuations, just as with stocks.

Advantages: The advantages of mutual funds are easy diversification and professional management. Because they can be purchased for as little as ¥10,000 and are managed by professionals without the need to analyze stocks yourself, they are an easy product for beginners and busy people. For example, a single 10,000 yen investment trust can invest in dozens to hundreds of stocks of companies both in Japan and overseas, providing a high diversification effect. This makes it less risky than investing in individual stocks and relatively less risky than investing in stocks. In fact, many products have slightly lower expected yields than stocks (i.e., low-risk, low-return), ranging from 0-8%, depending on the fund. Another advantage is that it does not require much time and effort to manage. You only need to read investment reports and do not necessarily need to be happy or sad about daily price fluctuations or gather information about companies. Since you can leave the selection of stocks and asset allocation to us, it is easy to continue investing even if you do not have much time to devote to it. Furthermore, some products, such as the monthly distribution type, allow you to receive regular distributions, meeting the needs of those who do not have a large amount of principal but want a regular income. In terms of taxation, if you accumulate investment trusts using tax-exempt status such as NISA, investment income and distributions are exempt from taxation.

Disadvantages : The disadvantages of mutual funds are cost, liquidity, and difficulty in product selection. First of all, mutual funds incur investment management fees (trust fees), which are deducted from the trust assets throughout the period of ownership. While some low-cost index funds charge less than 0.1% per year, some active funds charge as much as 1-2% per year, which is a cost burden that cannot be ignored over the long term. In addition, some products charge a fee at the time of purchase and a penalty on retained trust assets at the time of cancellation. In terms of liquidity, mutual funds cannot be bought and sold flexibly in real time because there is a time lag between the order and the execution and delivery at NAV (general publicly offered investment trusts are bought and sold at NAV once a day via distributors). Even if you want to escape quickly during a sharp decline, you may not be able to sell at the price you want. Furthermore, the fact that there are so many different products that it is difficult to determine which fund to choose is another concern for beginners. A fund with good performance does not necessarily mean that it will continue to perform well in the future, and some funds include high-risk investments. For example, mutual funds that invest in emerging market equities or high-yield bonds can have large unrealized losses in a few months because of their volatility. The risk of loss of principal exists even in mutual funds, and investors need to understand that losses may occur depending on the market environment even if the investment is left to professionals. Another disadvantage of entrusting mutual funds to professionals is that investors may neglect their own studies and lose interest in the market.

These are the basics, merits, and demerits of real estate, stocks, and mutual funds. Here is a brief comparison of the three types of investments in terms of their major characteristics.

The above are general trends, and specific yields and risks vary greatly depending on the investment target and market environment.

By investor type: Which investment is best suited for you?

Each investment method has its own advantages and disadvantages, so what is "definitely the right choice" will vary from person to person. Each investor's personality, asset situation, and objectives make it suitable for different types of investors. Below is a summary of guidelines on what investment methods are suitable for each investor type.

• Stability-oriented and long-term stable income: Real estate investment is suitable for those who want a stable source of income in the future and are willing to put down a small amount of money for a long period of time. Real estate is an asset that is easy to hold even if your risk tolerance is low, as it is resistant to market fluctuations and provides stable long-term income. In particular, company employees who have a stable main job and can take out a loan can leverage a real estate investment loan to efficiently build up their assets. Real estate investment is worth considering for solid people who "want to pay back their loans with a fixed monthly rental income while also preserving assets for the future. However, it is a prerequisite that you are willing to go through the hassle of property management or that you can entrust the management of your property to a property management company. On the other hand, since liquidity is low and large sums of money are tied up for decades, it is not suitable for those who need to respond to sudden expenses or those who want to invest flexibly by buying and selling frequently.

• People with a high risk tolerance and who aim for asset growth: Equity investments are suitable for those who have ample savings and "want to focus on large asset growth rather than risking some losses" and "want to grow aggressively in the short to medium term. Stocks are high-risk, high-return, and subject to violent price fluctuations, but if you can ride the waves of the market, you can earn large returns in a short period of time. Those who are young and have been investing for a long time, or those who have a lot of investment experience and can cope with market fluctuations calmly, may adopt a strategy of increasing the weight of stocks. In recent years, in particular, an increasing number of young people are starting to trade stocks easily with smartphone applications, making it more accessible to them. People who "enjoy learning about the economy and companies" and "don't mind checking price fluctuations" are suited to investing in stocks. On the other hand, stocks are not suitable for those who want to avoid losing their principal or those who do not want to feel happy or sad at the daily price fluctuations. If people who are prone to mental stress force themselves to invest in stocks, they may panic sell during a decline and incur losses. It is important to fully understand that stocks are high-risk assets and to invest with sufficient funds that will not interfere with your life even if the worst happens and you lose nothing.

• For those who are too busy with their day jobs to spend time studying and managing their investments, or for those who want to accumulate small amounts of assets with minimal risk, mutual funds (especially index funds) are recommended. With investment trusts, you can leave the management to experts, and since you can accumulate small amounts, it is easy for even beginners to start investing. In fact, there are an increasing number of office workers and housewives who are busy with work and household chores who are steadily purchasing investment trusts through savings NISA and other programs. Even those with a low risk tolerance can invest while minimizing principal fluctuations by choosing stable bond-type or balanced funds. On the other hand, those who want to be actively involved in the market and its management may find mutual funds insufficient for their needs. Because they "leave it up to you," they offer little flexibility and are not suitable for those who prefer to choose their own stocks and timing of purchases and sales. Also, since the risks of mutual funds vary from product to product, there is no need to study them at all. At the very least, you need to understand the investment targets and investment policies of the funds you are buying.

• For those who have a certain amount of assets and wish to diversify their investments by combining multiple investments, a well-balanced combination of real estate, stocks, and mutual funds is effective. For example, a combination strategy could be to purchase a single property with a large principal amount to secure stable income, while investing some of the funds in stocks and equity-type investment trusts to achieve growth. In fact, many of the ultra-high-net-worth individuals shown in the next section are not biased toward a single investment portfolio, but rather have a diversified asset allocation. By diversifying across multiple assets, it is possible to offset risk and create a portfolio that takes advantage of the strengths of each asset. However, too much diversification can be difficult to manage, so it is important to find the right balance by consulting with your own time and effort.

Recent Market Trends and Performance (2024-2025)

Over the past few years, the trends of various investment markets have changed dramatically against the backdrop of economic fluctuations, inflation, and rising interest rates following the global Corona disaster. Here is an overview of the major market trends and performance as of the latest time period, 2024 to early 2025.

• Stock Market Trends: Around 2022, the stock market entered an adjustment phase due to monetary tightening in the U.S. and Europe in response to high global inflation. In 2023, however, stock markets recovered strongly, especially in the U.S., and global equity indices rose sharply. Japanese stocks also performed well, with the Nikkei Stock Average and TOPIX (Tokyo Stock Exchange Stock Price Index) reaching record highs in 2024 for the first time since the bubble period, and other significant gains were achieved. This was due not only to improved corporate earnings and slowing inflation, but also to the inflow of individual money resulting from the start of the new NISA program. In fact, it is reported that a total of 11 trillion yen was purchased via the new NISA from the beginning of 2024 through October, with about 40% (about 4.4 trillion yen) of that amount going into Japanese equity investments. This has had a propping up effect on the domestic stock market, and it has been analyzed that individual NISA funds played a role in the stock market rally at the beginning of the year. However, from the second half of 2024 to the first half of 2025, concerns about a slowdown in the U.S. economy and rising long-term interest rates will cause the stock market to move slightly higher. The U.S. S&P 500 Index rose about 16% in 2023, but as of April 2025, it is in an adjustment phase, having fallen about 5% since the beginning of the year. In terms of regions, the Hong Kong Hang Seng Index slumped due to the slowdown in the Chinese economy, while the U.S., European, and Japanese markets were relatively resilient (as of March 2025, the Hang Seng Index was up the most since the beginning of the year, while U.S. stocks were reportedly in negative territory). In general, 2024 was a good year for stocks, but some believe that 2025 will be a period of monetary policy change in many countries, and that prices will be moderate (or even stagnant).

• Real estate market trends: In real estate, transaction and price growth slowed in 2022-2023, when interest rates rose and financing costs increased. In particular, there were price adjustments in commercial real estate and overseas residential markets due to upward pressure on yields (cap rates). However, since the second half of 2024, investor sentiment has improved and global real estate transactions are on the road to recovery. In fact, the global transaction slump bottomed out in 2023, and real estate investment rose sharply in the fourth quarter of 2024, up 37% year over year, and recovered +14% year over year for the full year of 2024. This is due to the fact that inflation has peaked out and interest rates have reached their ceiling in many countries, which has led to a move toward property acquisition as an opportune time. In the Japanese real estate market, office vacancy rates in central Tokyo and Osaka rose slightly, but remain low, and rents are stable. In the housing market, while prices of used condominiums in central Tokyo remain high, post-Corona trends are also continuing, such as diversification into the suburbs and rural areas and increased demand for new detached houses. The real estate REIT index (listed real estate investment trust) fell temporarily during the rising interest rate phase, but showed a recovery in 2024. Some believe that real estate investment demand will further increase if interest rates enter a declining phase in the future. In general, the real estate market is recovering from 2024 onward after stagnating from 2022 to 2023.

• Trends in Mutual Funds and Other Assets: In the mutual fund market, equity-type funds saw increased inflows as the stock market rallied in 2024. In fact, equity investment trusts sold very well in Japan in the first half of 2024, and the new NISA has stimulated equity investment via investment trusts. On the other hand, a shift of funds to safe assets can be seen as global interest rates rise, and money market fund (MMF) inflows reached a record high from 2023 to 2024. In the U.S., for example, MMF balances reached a record high of $6.5 trillion as of the end of March 2024 and are reported to have expanded to over $7 trillion globally by March 2025. This is due to the growing trend to invest in safe assets rather than risky assets, as the high interest rate environment provides sufficient yields even with short-term investments. In the bond market, prices have been recovering since the second half of 2024 due to expectations of interest rate hikes by central banks in various countries peaking out, and bond-type funds have seen improved yields. In the commodities market, prices have calmed down after the resource price spike in 2022, but the situation could still be volatile depending on geopolitical risks. Crypto assets and emerging investment products continue to be volatile and tend to be limited to a few wealthy individuals and speculators compared to traditional assets. In general, inflation and interest rate trends have greatly influenced investment sentiment in recent years, and funds have been moving in and out of each market, including stocks, real estate, and bonds. The number of individual investors utilizing investment trusts is also on the rise, and the new NISA system in Japan has strengthened the trend "from savings to investment.

Trends in Investment Combinations of the Ultra-High Net Worth (UHNW): How They Allocate Their Assets

Ultra High Net Worth Individuals (UHNWIs) with assets in the billions of yen range have more diversified and sophisticated investment methods. They invest in a variety of assets, including real estate, stocks, and mutual funds (funds), and build their own portfolios. By exploring this trend, we can get an idea of how asset owners are combining each investment.

According to recent surveys, ultra-high-net-worth individuals often allocate about 20-30% of their total portfolio to real estate and equities (publicly traded stocks), respectively. For example, according to a survey by a wealth network, private equity (private equity and investments in their own businesses) accounted for the largest portion of members' assets at 28%, followed by real estate at 26%, public equities at 22%, and the rest in cash (12%) and hedge funds and other small amounts. In other words, the ultra-high-net-worth individuals tend to be more heavily invested in company stock and private equity (as business owners) and in real estate, while the percentage of direct investment in publicly traded stocks is not as high as one might expect. This is due to the fact that many of the HNWIs come from business ownership backgrounds and have invested a large portion of their wealth in their own businesses (private equities), while real estate has been their main asset for many years. In fact, some have noted that "real estate has long occupied the throne of the HNWI portfolio, but in recent years the private market (private equity and private equities) has overtaken it. Nevertheless, real estate remains a pillar of asset preservation and income generation, and many HNWIs own multiple properties in various parts of the world. Publicly traded stocks are not entirely neglected either, with index-linked exchange traded funds (ETFs) and index funds increasingly being used to capitalize on the growth of the stock market. In other words, rather than buying and selling individual stocks themselves, they are investing in equities as well, entrusting their investments to professional investment managers. In addition, some HNWIs are diversifying their assets into alternative investments such as hedge funds, commodities, infrastructure investments, and real assets such as art and wine.

In summary, the ultra-high-net-worth individuals have a well-balanced mix of real estate, equities, and funds to optimize risk and return. Their typical style is to hold a large amount of real estate as a stable source of income, participate in their own businesses and the stock market as a growth opportunity, and use surplus funds to invest in a variety of alternative investments. We, ordinary investors, can also benefit from this "core-satellite strategy" (core stable assets + some growth assets) and diversified investment approach, even if we are of a different size.

In summary: How to find the right investment approach for you

Finally, based on the content of this article, we summarize the key points for finding the investment method that is right for you. To be successful in investing, it is essential to choose a method that matches your situation and objectives, rather than relying on methods that others say are good. To this end, consider the following steps

1. Clarify the purpose and time frame of the investment: First, clarify what you are investing for, the target yield, and the time frame. The right product will differ depending on whether you want to make a stable long-term investment for retirement, to build your own home within a few years, or to expand your assets with your spare cash. Narrow down your approach according to your goals, such as real estate or index funds for long-term stability, or stocks for short-term success.

2. Determine your risk tolerance: Ask yourself to what extent you are willing to accept the possibility of losing principal. The risk level of the assets you choose will depend on whether you are comfortable with a reduction in your investment by half or even 10%. If you cannot tolerate large fluctuations, consider focusing on less volatile assets such as bonds, real estate, and balanced investment trusts rather than stocks. On the other hand, if you don't mind a little turbulence and would rather pursue returns, you would set a higher ratio of stocks. It is important to analyze yourself honestly, as investing beyond your risk tolerance will cause mental stress and is a recipe for failure.

3. Consider your initial capital and liquidity needs: Consider the amount of principal you can afford and the likelihood that you will need to convert it to cash along the way. For example, if you have plenty of spare cash that you do not plan to use in the immediate future, long-term investments such as real estate may be an option, but buying real estate with funds that you may use within a few years is not appropriate. If you want to start with a small amount, stocks or mutual funds are more realistic. If you want to be able to cash out immediately in case of emergency, highly liquid stocks or publicly traded funds are suitable. Everyone has a different tolerance for capital constraints, so choose a method that fits your financial plan.

4. Check your willingness to take the time and effort to learn about investing: Each investment requires a different level of management effort. Some, like real estate, require a lot of time and expertise, while others, like mutual funds, can be left largely to you. Consider how much time and effort you can devote to investment management. If you enjoy investing as a hobby, you may want to try individual stock investments, or if you are too busy, you may not be able to, and leave it to mutual funds or robo-advisors. Choosing a " sustainable approach " will ultimately lead to long-term success.

5. Diversify and combine: Don't settle for just one investment, but consider combining multiple investment options. As the saying goes, "Don't put all your eggs in one basket." Diversifying your assets will reduce risk and increase stability. Since real estate and stocks often move at different times, having both can reduce the overall swing of your portfolio. A single mutual fund can diversify your portfolio, but you can also combine it with other real assets. As practiced by the ultra-high-net-worth individuals, try to maintain a balanced allocation between stable and growing assets.

6. Gather Information and Use Experts: Finally, gathering information is essential to finding the right approach for you. Once you have a basic understanding of the investments in this article, you should research more about the investments you are interested in. Use books, websites, and seminars to update your knowledge. It is also effective to consult with advisors at securities companies and financial institutions. However, be aware that the final decision should be made by yourself. It is important to be wary of "must-have" stories, and to make a calm decision based on both the merits and demerits.

Conclusion: Although real estate, stocks, and investment trusts are all promising asset management vehicles, each has its own characteristics and is not suitable for everyone. Please refer to the characteristics and the latest trends described in this article to choose the investment method that fits your goals and personality. If you cannot decide at once, it is a good idea to try a small amount of money and get a feel for it. The important thing is to continue to do so in a way that suits you and without strain. We hope that you will find the right partner (investment method) in your long-term asset-building journey, and that you will reap rich rewards in the future.