Which has performed better historically, the stock market or real estate?

Real Estate, Stocks
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February 2017
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The data all depends on the timeframe. The issue that comes up from talking to clients about their own home, or rental properties, is they don't compare apples to apples. They don't take into account all the expenses of real estate, like property taxes, a new roof, etc. They also don't take into account liquidity, I can sell a mutual fund or ETF in seconds for a few dollars, not so for Real Estate. Lastly, they don't take into account leverage. With leverage comes risk, and you don't have leverage with most stock funds, but you most often do with personal real estate and some REITS.

Morningstar recently did a very good analysis of this very thing -- it is on my website "The Home As A Risky Asset": http://www.sonafinancial.com/articles-tools/

Several advisors have given you some great stats on some historical performance for REITS vs. the market. When I look at the data and I have to choose what asset class is best at building wealth on a risk-adjusted basis, I have to choose the stock market. If you take into account liquidity and the fact that most Americans have their wealth tied up in their own homes, I think Real Estate should be used, but used in moderation. Part of the reason I use Dimensional Funds is they separate out real estate because it is a special asset class.

Good Luck!

Mark Struthers CFA, CFP®

February 2017
February 2017
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