Now if you’re a red blooded American realtor, you already know the answer. It’s real estate, right? Well, not so fast. According to a report in CNN Money by Marlys Harris, senior editor of Money Magazine, if you’re looking at the last five years, RE clobbered the stock market. But if you take a longer view, say 25 years, stocks did better by almost double.
Those are the numbers. The numbers don’t lie. On the other hand, however, things are not always what they seem at first glance. Real estate, almost anytime, anywhere is a good investment. The RE market typically doesn’t fluctuate like the stock market. Yeah, it goes down a little and up a little, but it’s very stable. You don’t have to be a genius (or do a ton of homework) to pick a RE winner.
Stocks, on the other hand are another animal. The numbers don’t lie. If you look at stocks IN GENERAL they did great. But stocks are subject to wild fluctuations. (Just like two weeks ago when they said we were on the verge of a recession. Then today, the stock market hit a record high, with unprecedented highs in the near future.) But although the market in general was very productive over the long haul, you had to predict (accurately) the winners. What’s the likelihood that you would have picked all the stocks that brought you a better return than RE? Pretty low if you’re like most people. You most likely would have picked a few winners and a few losers and your net wouldn’t have been as high as the number indicate.
At the end of the day, RE is a stable investment that most people can do well with. It doesn’t require that you learn a whole new vocabulary, or that you go to college for years to gain some special insight. You can invest in it and have confidence it will go up in value. You don’t have to babysit it. You don’t have to watch its progress every day with fear and trepidation. You just go about your business and it makes you money.
For my money, RE is the better investment. I don’t think anything compares to it. I think it’s also the best investment for the uninitiated. It’s safe, it’s secure and it’s easy. You sure can’t say that about the stock market.
I am a “red blooded American Realtor”; nevertheless numbers don’t lie. Real Estate values have appreciated dramatically over the last 5-7 years. But the American equity market has outperformed real estate by far for any long term period since records have been kept. The author ignores one major factor; while there is an implied “cost of carry” for both investments, real estate is also subject to annual taxes, insurance and other potential maintenance costs. In addition, usually real estate is not even in the same ballpark with respect to liquidity compared with publicly traded securities. Finally, the relatively substantial transaction costs associated with real estate are conveniently ignored by most statistics. Given the variety of factors stated above, the choice of which investment is better isn’t even open to debate.
As an aside, the author states a view which is commonly expressed, but very inaccurate, i.e. that you can have confidence it will go up in value, that its a safe investment and that it doesn’t require much intelligence or babysitting. I can’t tell you how many client’s I have wondering why they’ve lost money and how much more pain they’ll have to go through before their investments become profitable. Only “the most unitiated” are gullible enough to believe this. Unfortunately the real estate bubble of the past decade has been fueled by the same type of “irrational exuberance” that caused the stock market bubble and subsequent decline (burst) of 2001. There are significant differences in the two markets, and hopefully we will experience a “soft landing” or merely a mild correction in the real estate market. If not, I’ll probably be forced to close my Real Estate Business.
Hi Allan,
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Thanks for the post. My money is in stocks right now… real estate is just too unstable and unpredictable.