Active investing in Real Estate vs. Small Cap Stocks

[Justin Cook]

Hi Bigger Pockets community!

I just created an account and would love to get your advice on where I should focus investing.

Background on me: I'm 25 years old and have been living/working in San Jose for 5 years. All my investing up to this point has been in index funds in 401k / Roth IRA. But now I have ~$50k in cash saved up (plus another $25-$50k per year of my income) that I want to put into an active investing strategy. The two main ideas that I'm considering for an active strategy are real estate and small cap investing, each of which has it's own pros and cons.

Real estate: Pros - opportunity to buy below fair value due to market inefficiency, ability to control/influence many aspects of investment performance, cheap leverage available via financing, ability to save on rent via house hacking. Cons - my market (San Jose / south bay area) has high barriers to entry and may not be possible to cash flow in (may have to rely on appreciation for a good return), I am not handy or interested in doing any rehab or maintenance on properties myself.

Small cap stocks: Pros - also opportunity to buy below fair value due to market inefficiency, highly passive / low-touch once purchased, low barriers to entry (can invest small amounts). Cons - leverage too expensive to make sense, no ability to house-hack my way out of rent, little/no ability to control/influence investment performance after buying stock.

Any advice on whether any of these ideas are not accurate, or if I'm missing any major considerations? What is your advice to someone in my shoes?

Thanks!

-Justin