This year, real estate purchases were clearly favored with 36% of the vote. Stocks and mutual funds came in at 22%, gold at 18%, and savings accounts and certificates of deposit at 13%. Only 4% of Americans chose bonds and 3% chose cryptocurrencies.
In some ways, real estate’s popularity isn’t surprising. We all know someone who bought a home years ago that’s now worth significantly more. And unlike stocks, bonds, and cryptocurrencies, which may seem like ephemeral numbers in an account, real estate is a tangible asset.
Still, it’s worth wondering whether buying real estate makes sense for your personal financial plan, investment experts say.
“When you’re talking about long-term investing, the question is, what is the ultimate investment goal?” says Nick Foulkes, advisor and director of communications strategy at Great Waters Financial. “Am I trying to generate income? Am I trying to generate wealth? Am I trying to generate security? Unless I know the desired outcome, what are the best long-term investment options? It’s difficult to say.
It’s worth noting that the Gallup poll uses some amorphous terms. First, “long-term investing” means different things to different people. The same goes for real estate. You can invest in real estate through real estate investment trusts, which trade like stocks, and ETFs, which hold stocks. Wealthy investors can enter into real estate deals that are structured similar to private equity investments.
But for many Americans, investing in real estate likely means buying a primary residence, which will appreciate in value as you pay off your mortgage.
Assuming the best long-term investment is similar to owning the assets that will best help you build wealth for retirement, stocks have been a much better investment than real estate over the past few decades.
From the beginning of 1990 to April 2024, the S&P CoreLogic Case Shiller U.S. National Home Price Index, which measures the value of residential real estate, rose 308%. That means house prices have quadrupled in the past 30 years.
During the same period, the S&P 500, a measure of the entire U.S. stock market, rose 1,325%.
“For any investor, especially a young investor, there is no denying the long-term compounding effect of stocks,” said Andrew Briggs, wealth manager and director of portfolio management at Plaza Advisory Group.
Stocks have a reputation for falling in value more rapidly than real estate in the short term, he says, but the market has a steady and impressive upward trend over the long term.
“The history is there,” Briggs added. “There has been virtually no decade of stock losses since the 1920s.” In a 20-year cycle, there are none.
Another big advantage of investing in the stock market is that it’s easy to get started. Open a brokerage account, deposit your lunch money, buy a few shares in an index ETF, and in no time you’ll be a proud partial owner of hundreds or even thousands of companies. Masu.
But a 15% down payment on a mid-priced home costs about $63,000. And when you take out a mortgage, you agree to take on a large amount of debt that must be repaid with interest. The average interest rate on a 30-year fixed-rate mortgage is currently over 7%, according to Bankrate.
But Gallup’s poll finds that among people who can’t afford a home, real estate is an even bigger winner compared to stocks. Among Americans making less than $40,000 a year, 33% choose real estate as their first long-term investment. Gold came in second with 23%, while savings accounts and CDs rounded out the podium at 20%. Just 14% chose stocks and mutual funds.
For many Americans, the best long-term investments are not necessarily the ones most likely to yield the highest returns, but the ones they perceive as providing security and stability.
Even if the value of your home doesn’t increase as much as you expected, it’s okay because it’s still a place to live.
Some homeowners might be able to extract some of their home’s equity as a down payment on another home that they rent out to generate income, a strategy known as house hacking. For certain people, “it definitely makes sense for wealth creation,” Foulkes says.
Ultimately, in the long run, it would be wise to spread your investments across different assets that are subject to different market forces and provide different types of income, says Brian Bendig, president of MJP Wealth Advisors. .
“We allocate our clients with alternative investments, including real estate, around a core traditional portfolio. [of stocks and bonds]”Not only is real estate a great hedge against inflation, it also generates tax-advantaged income,” he says.
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