Investors are always talking about the risks of various types of investments. Is it safer to invest in stocks, bonds, bills, or real estate? Though you’ll get different answers from different people, looking to the experts can get you a better analysis.
I want to share with you today a very interesting study that was done on the performance of real estate vs. stocks over time. The study is called The Rate of Return on Everything, 1870 – 2015 and was published in 2017. Researchers studied 16 advanced economies over the period of 145 years and compared everything from residential real estate, stocks, bonds, and bills.
The countries included Australia, Belgium, Denmark, Finland, France, Germany, Italy, Japan, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, UK, and USA.
There were many leading researchers and economists involved in analyzing the massive amounts of data. I encourage you to read the entire paper, because there’s some really useful information concerning stocks vs. real estate. Here are some key take-aways:
- Residential real estate as investments have had the best rate of return over stocks since 1870. The average rate of return? Over 7 percent. Granted, stocks weren’t too far behind, coming in a just under 7 percent, but were much more volatile. Bonds and bills came after that, with the lowest returns.
- Half the returns from real estate came from appreciation and half from rent.
- In the years from 1980 to 2015, stocks beat real estate in terms of ROI at 10.7 percent and real estate at 6.4 percent. However, stocks are far riskier to invest in because of wild volatility at times. Sure, you might get a higher return, but you’re also taking a higher risk.
- Real estate is more likely to be low risk, but high returns.
- Investing in real estate gives you something physical. People like how they can see it and touch it. It feels more real to them and this can help them think more positively about the investment, holding onto it longer. In doing so, they’re more apt to enjoy a decent ROI year after year, rather than always buying and selling based on market volatility.
- Real estate investments are very good at hedging protection from inflation.
Granted, you may be one who invests in stocks and enjoys a nice 14 percent ROI at the moment, but will that high rate of return last 20 years? Most likely not. With real estate investing, the consistency and less volatility make for the wiser investment.
“Residential real estate, not equity, has been the best long-run investment over the course of modern history.” ~ The Rate of Return on Everything, 1870-2015