Real estate or stock market: Which is the preferred long-term investment?
According to a new survey from Bankrate.com, the top choice was real estate. Thirty one percent of people polled trust in brick and mortar, compared to 20 percent who put their faith in stocks.
That survey sparks a debate: Should you look to real estate or the stock market to build your wealth over the long term?
There’s no easy answer to this question, but here’s fodder for thought.
The case for stocks
“The world’s wealthiest people each made their fortunes from the stock market, not real estate,” says Chris Hanson, host of the podcast "Investing From the Beach."
Equities are the primary way to protect against the erosion of purchasing power caused by inflation, says Jeffrey Fulk, a managing director at Alvarium Investment Managers in San Francisco. “Equities are liquid and can be rebalanced over time to ensure their risk is appropriately represented in a portfolio. The main negative is volatility, which can cause investors to make uneconomic decisions about when to buy and sell.”
Real estate is illiquid. And historically, the stock market has returned around 10 percent a year.
The case for real estate
Meanwhile, there are some who cling to the belief that real estate is golden, and they may have a point. With the exception of housing bubbles, such as the 2008 crisis, real estate has consistently appreciated in value, says Ben Mizes, CEO of Clever Real Estate in St. Louis. “Housing prices have been growing at rapid rates since the housing crisis, which is great for investors," says Mizes.
"While stocks are subject to fluctuating dividends and volatile market forces, real estate offers relatively stable, consistent returns from rent."
CORRECTION: The last name of Jeffrey Fulk, a managing director at Alvarium Investment Managers in San Francisco, was misspelled in an earlier version of this story.