Real Estate vs Stocks

Surprisingly similar performance

Moving to the next category on the investment cheat sheet, we have real estate. This is arguably the most popular investment category when you really think about it. That’s because owning a house counts as investing in real estate! A quick search online suggests only a little more than half of Americans own stocks while more than sixty percent own a house.

I saw a funny comment the other day about real estate, where someone was wondering why everyone liked it so much when stocks seem to do better than house price appreciation over the long term. The response was simple - you can’t live in the Dow Jones.

While a house is a form of investing, it’s more about having a place to live. So, there is more to this investment than just making money (though we all know stories of people that bought houses that had huge amounts of appreciation).

Since a house is a large part of household assets, it may not make sense to add real estate to some individual investment portfolios since there may already be a lot of exposure. But, if you do want exposure and don’t want to go buy a whole house, there are real estate investment trusts that can give you a real estate investment almost like you would invest in a stock. Here is how one popular real estate fund has performed:

I was pretty surprised to see how similarly these investments performed over the last twenty years. During this time, we had both the dot-com bubble and the real estate bubble. Yet, after all that, both investments are pretty much equal on performance. They also both saw a really large return despite those events.

Once we get through all the investment categories, it will be interesting to see how much real estate exposure we may want to have in a portfolio due to diversification benefits. Before that though, we still have a few more investments to take a look at!