Here’s a question for you: What is the best way to invest money you wouldn’t need for 10 years or more?
If you answered real estate, you aren’t alone. We all know the real estate market is as hot as ever, with some speculating that we might even be approaching a housing price bubble. Yet that apparently hasn’t affected America’s optimism towards real estate.
For the past five years, Bankrate.com has conducted a survey in which it polls more than 1,000 Americans and asked about their preferred long-term investments. This year, and for the third consecutive year, real estate took the top honor.
Roughly 28% of those surveyed chose real estate as their favorite long-term investment. No-risk cash investments came in a close second at 23%. Only 17% of people said they favor the stock market; 15% chose gold or other precious metals, and just 4% selected bonds.
A Gallup poll conducted in April revealed similar sentiment, with a whopping 34% of those surveyed choosing real estate as their favorite long-term investment. In 2011, only 19% of Americans surveyed by Gallop said real estate was their preferred investment choice. This year, in a slight deviation from the Bankrate.com poll, respondents to the Gallup poll chose stocks as their second favorite investment.
In any event, the fact that so many Americans defer to real estate as their top investment choice is somewhat baffling to industry experts.
“[Real estate] is a rather poor investment,” says RBC Wealth Management financial advisor Darla Kashian. “It’s highly illiquid, and markets aren’t always rational.”
According to at least one study, between 1990 and 2011, housing returned only 1.3% per year after inflation. Stocks tended to perform more than four times better. Meanwhile, though stocks lag as an investment choice, the stock market is in the midst of the second longest upmarket streak since the end of World War II, reports Bankrate.
“If you look at historical averages comparing stocks and cash, it’s not close,” saysMatt Becker, a financial planner and founder of Mom and Dad Money. Despite the recession, stocks have returned an average 8.6% per year over the past decade—well above the 5% returns offered by the 10-year Treasury or 0.3% returns investors have earned on cash deposits during that time.
Still, for some, the stock market is too volatile. And real estate, though illiquid, is a more tangible asset that Americans can relate to. After all, everyone needs a home. Even if real estate doesn’t appreciate, many people like the security of knowing they’re building equity in an asset over time. For some, that’s a lot more appealing than paying a landlord rent each month.
“If you have a long time horizon, you will win in real estate,” says Abhi Golhar, a 32-year-old Atlanta-based real estate investor.
The fact that interest rates are still hovering around record lows, and that tax policies favor homeownership, and it’s almost no wonder Americans continue to choose real estate as their preferred investment.
It’s certainly ours.