Accessed April 3, 2020. A $100 investment in the average home (as tracked by the Home Price Index from the Federal Housing Finance Agency (FHFA)) in 1975 would have grown to about $500 by 2013. A similar $100 investment in the S&P 500 over that time frame would have grown to approximately $1,600.. Most people are clear nowadays that you need to have an investment strategy that fits your budget as well as your needs. What real estate … Time periods ending on 7/16/19. Across the 16 countries studied, stock investments earned an average annual rate of return of 10.7 percent, decisively beating the real estate market’s stolid 6.4 percent. These costs eat into your returns. If you look at the longest time period, you’ll notice that the performance is comparable but with a significant edge to real estate. "Real Estate Investment Performance." While there is some reason to believe that the overall stock market would gain in real (as opposed to nominal) value over time, there is little reason to believe that a single stock should grow in perpetuity. The rate of return for the Dow Jones Industrial Average (DJIA) for the same period was around 9.2% as shown in the Dow Long Range Trend chart below. Simply click here to learn more and access your complimentary copy. Our commitment to you is complete honesty: we will never allow affiliate partner relationships to influence our opinion of offers that appear on this site. To learn more about CafeMedia’s data usage, visit: www.cafemedia.com/publisher-advertising-privacy-policy. The comparable average return … After accounting for inflation, the average home value has risen by just 1.5% per year. May 13, 1996, is the inception date of the Vanguard Real Estate mutual fund. Compound annual growth rate (CAGR) is the rate of return that would be required for an investment to grow from its beginning balance to its ending one. Which asset class has produced better returns over long periods of time -- real estate or investing in stocks? Matt is a Certified Financial Planner® and has been a Fool.com contributor since 2012. For many people, building long-term wealth often boils down to a questions of real estate vs. stock markets. Unlike investing in stocks, where it’s irresponsible to invest with borrowed money, you can use significant amounts of financing when investing in real estate without adding a ton of risk. Owning real estate can certainly pay off, but to say it’s unequivocally a better investment than putting money in the financial markets is short-sighted. You may choose to invest in real estate for good for diversification, but what about returns? Choosing Investing in Stocks Over Real Estate 1. Average 20-year returns in commercial real estate slightly outperform the S&P 500 Index, running at around 9.5%. *By submitting your email you are agreeing to our Terms & Conditions. The effect of this leverage is that small returns can be greatly amplified. Excluding the actual cash flow of real estate, real estate still does better over certain time periods than stocks: The Housing Growth Potential is Greater If you consider the actual cash flow of the properties, stock investments don’t stand a chance. Stocks have generated roughly 7% per year over the long run after accounting for inflation. Some people speculate with real estate prices, but commercial and residential real estate serve tangible functions. All rights reserved. (2) Buying a Rental Property vs. Stocks - Leverage to Build Wealth. A 0% weighting in stocks and a 100% weighting in bonds has provided an average annual return of 5.4%, beating inflation by roughly 3.4% a year and twice the current risk free rate of return. © 2018 - 2020 The Motley Fool, LLC. Historical Evidence Reliable data on the value of real estate in the U.S. is relatively murky before the 1920s. They found from 1870-2015, worldwide housing returns were 6.9% after inflation, versus 6.7% for the stock market. Per data from Ibbotson, the … But this is misleading. Both have shown historical positive returns, and both have been two of the most reliable vehicles for middle class financial growth in the United States for 100-plus years. (The Real Estate average ROR was around 7.6% between 1900-2008). Real Estate Vs. Stocks. Historical Investment Returns Calculator Compare historical stock, commodity, real estate, and fixed income returns. Accessed April 3, 2020. 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