REAL ESTATE vs STOCKS
An article in today’s NYT explores the idea that stocks are actually a better investment than real estate in the long run. It states that after counting for inflation, improvements, taxes, and interest, that stocks will make you more money in the long run. The article also notes the difficulty of cashing out your real estate profits because you will need to buy another place to live in.
Since 1980, for example, money invested in the Standard & Poor's 500 has delivered a return of 10 percent a year on average. Including dividends, the return on the S.& P. 500 rises to 12 percent a year. Even in New York and San Francisco, homes have risen in value only about 7 percent a year over the same span.
That does not mean real estate is a bad investment. It is often an important source of wealth for families. But its main benefit is what it has always been: you can live in the house you own.
I agree with the article, it reminds me of a debate I had with a friend in the 80's about the price of a seat on the exchanges vs real estate. I think the caveat here is that investors need to be disciplined and mostly invest in low cost index funds.
posted by Long Island Bob @ 1:13 PM
4 Comments:
I suppose it depends on the exact stock or real estate that you purchase.
Real estate, however, offers greater flexibility, to my mind. After all, you can write off interest paid on a real estate loan on your taxes (in some circumstance) and can refinance at a lower rate to take advantage of the equity created by rising markets.
Plus, if things go badly, you can live in a house. A stock coupon makes a poor shelter from the snow.
XT
what's more,
real estate is the only investment circuit in which you can borrow hundreds of thousands more than you actually have to make the investment.
try borrowing $400,000 on wall street with only $20,000 in your pocket to go play around the market.
plus all those tax benes
I am not saying that you shouldn't own a home, I own one, but I primarily view it as a place to live and bought one within my means. Many people buy houses they cannot afford based on the view that they are going to go up a very high rates forever. I am suggesting that you should invest all of your excess money in the market as opposed to real estate. If stocks are such a bad investmens ask yourself how Warren Buffet became one of the richest men in the world.
Hey Bob,
I understand what you're saying. My view is that the real estate "bubble" will last as long as the low interest rates. Once people get whacked at the bank because they can't afford as much house for the same money, things will get reasonable again.
Warren Buffet is simply very good at what he does. I've thought about trying to pass myself off as his illegitimate love-child. If I know how to fake a paternity test, I might try it.
The problem I think you are really trying to get at is that houses can be leveraged beyond their value - even as a place to live. The good thing about not being able to borrow to buy stock (which some people can do - called "margin trading") is that you can't default on the payment and have it taken away after you've paid for half of it.
XT
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