Invest and prosper

Short answer: stocks. Here’s why.

Over the long run, stocks massively outperform real estate. To see a chart of the performance of S&P 500 vs. the real estate market in 10 largest US metropolitan areas, from 1980 to 2005, on Forbes.com, click here.

Performance is not the only reason why stocks are a much better long term investment than real estate. Stocks (and ETFs and mutual funds) are much less expensive to buy, sell and own (discount brokers now charge very low commissions without any annual or inactivity fees). In addition, a stock portfolio can be diversified; real estate, since it represents a single asset class, lacks diversification. The time and effort one needs to expend to own real estate can be tremendous - think finding, inspecting, negotiating for and buying the property, maintenance and repairs, dealing with tenants if a property is a rental, as well as the hassle of selling it.

References (which are also suggested reading):

1. Stocks vs. Real Estate, CNNMoney.com
2. Real Estate Vs. Stocks, Forbes.com

This entry was posted on Friday, May 2nd, 2008 at 8:22 pm and is filed under Portfolio building. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.