A reason more people consider real estate to be a better investment than stocks, bonds, gold, cryptocurrency or a bank account is the value of an average American home grew by more than 20% between the summer of 2021 and 2022.
From stories about people who bought a fixer-upper in a remote town a few years ago and saw their equity soar are abundant while developers are falling over themselves to find the next under-the-radar town that’s going to get hot.
For the third time in four years, a Bankrate survey found that real estate is what Americans consider the best investment. In a survey of 1,025 adults, 29% said that it was the best place to put their money. The stock market was preferred by 26% while cash investments and gold followed with 17% and 9%.
Bonds and cryptocurrency were preferred by a respective 9% and 6%.
“Despite a housing market that is coming off the boil, preference for real estate remains high,” Greg McBride, Bankrate’s chief financial analyst, said in a statement. “For the third time in the past four years and sixth time in the past 10 years, real estate is Americans’ preferred way to invest money not needed for more than 10 years.”
Why Do Many Prefer The Real Estate To Stocks?
In some ways, confidence in the stock market is improving despite the fact that the S&P 500 is down more than 9% year-over-year. In 2021, only 16% considered the stock market to be the best investment.
But at the same time, the number of people who consider it to be a good thing to do with one’s money is still relatively low given its wealth-building potential.
Those who didn’t pick it as a top investment named “too much volatility,” being intimidated by or not understanding how it works and the belief that it is “rigged against individuals” as the reasons why they prefer other forms of investment.
Baby boomers were especially likely to have a fear of volatility — 44% of those aged from 58 to 76 named were likely to fear the stock market compared to only 29% of millennials aged between 28 and 41.
Don’t Fear Volatility, Embrace It
While there is certainly truth to the volatility stereotype, a lot of this fear comes from seeing the stock market as something convoluted and real estate as something “real.”
In reality, the S&P 500 grew by an average of 14.8% annually between 2012 and 2021. While a 10-year average fails to account for good and bad years, a long-term outlook and diversified portfolio shields one from the risk of the kind of “I’m ruined!” losses that come from popular culture and tend to stick as stereotypes.
In the last few years, most real estate has certainly been a very good investment as the average price of a home has been rising in the double-digits since 2019. But putting the question of one’s main home aside, buying additional properties as investments also comes with volatility — between July 2018 and 2019, the average home price grew by only 7.1% while many experts are already warning about a crash that is starting to follow the boon seen in the last few years.
“As a long-term investor, you have to realize that volatility is a feature of the stock market but if you buy shares in really good companies and hold them for a very long time, think at least five years, but likely longer, that’s how you build wealth,” TheStreet Managing Editor Daniel Kline wrote in July.