We’ve all heard and probably participated in the discussion—at cocktail parties, family gatherings, college reunions and any number of other venues. Stocks or real estate?
Most times when the subject arises there’s little more than anectodal or second hand information offered to present a case for either one.
Perhaps the best answer is not “either or,” but some of both, although the question of how much to allocate to which, and when, remains a point of debate.
Perhaps the best answer is not “either or,” but some of both, although the question of how much to allocate to which, and when, remains a point of debate.
In looking at both asset categories each has its inherent strengths and weaknesses.
Stocks are certainly more liquid, but suffer from greater volatility. Lose 20% of your portfolio in a day and you can either liquidate all or part of it, or maybe hang on in hopes of a rebound.
Real estate, specifically a home in this example, isn’t as liquid but usually provides insulation against rapid and dramatic losses. In the case of owner-occupied real estate there’s also the benefit of having enjoyment and use of a tangible asset, albeit with the expenses of taxes, maintenance and debt. But some of that is deductible, of course, and the sale of a primary home offers a shelter from a portion of capital gains that is not available with stocks.
There is no one size fits all solution. It depends on many variables—individual objectives, risk tolerance, time horizon and others.
Looking back over the past decade performance of the widely followed S&P 500 index provides one broad measure of how stocks peformed.
On January 3, 2001 – the first full day of trading for the year-- the S&P 500 Index closed at 1,283.2698. On January 3, 2111 the Index finished the day at 1,271.8900.
If an investor had bought the broad S&P 500 Index with the intention of limiting individual stock risk the result after 10 years would have been a loss of 0.8867816%. Not especially appealing to be standing still for a decade.
The more narrow Dow Jones Industrial Average index of 30 large capitalized stocks fared considerably better, gaining 9.621% over the 10 years since January of 2001.
By contrast—using Bend single family homes as the measure--the median price of a residence in Bend
However, if you bought a median priced Bend home in 2006 by the end of 2010 you'd theoretically be able to sell it for about 45% of what you paid for it.
But no purchase, stocks or bonds, makes an ideal model. In the end it’s mostly matter of timing and the an individual’s investment window.
However, if you bought a median priced Bend home in 2006 by the end of 2010 you'd theoretically be able to sell it for about 45% of what you paid for it.
But no purchase, stocks or bonds, makes an ideal model. In the end it’s mostly matter of timing and the an individual’s investment window.
With the financial meltdown in late 2008 the S&P 500 dropped to a low of 735.0898 on February 29, 2009, more than 42% below its early 2001 level. But the index had climbed by a dramatic 96.93% to 1,332.32 by February 14, 2011. So if you’d jumped into stocks after the recent market collapse you’d be a big winner. But if you’d bought the index 10 years ago you’d be about where you began back in early 2011, and even less so considering inflation.
So in the past few years an investment in a typical median priced Bend
Looking at national perceptions, a survey by Fannie Mae, the federal housing agency, in mid 2010 indicated that 66% of consumers homes were a safe investment and only 16% felt that way about stocks. In 2003 a similar suirvey showed that 83% felt a home was a safe investment.
