Real Estate vs. Stock Market

Any guesses on how much $100 invested 10 years ago in the S&P 500 would be worth today?

Try $71.80.  That’s a decline of about 28.2%.

But how about if we look back 20 years?  Surely those of us who followed the market remember the 90’s when stocks rose with wild abandon.  Well, it turns out that money invested in the S&P 500 on July 1, 1990 has appreciated 5.4% per year over the last 20 years, its compound annual growth rate during that period.

For those of us who invested in the stock market over that period, that kind of return was not the stuff our retirement dreams were made of.  And if we bought in or sold at the wrong times, all bets were off.

At AARE, we enjoy the benefits of investing in real estate.

Why not just invest in a Real Estate Investment Trust (REIT)?

Simply put, REITs have lower returns despite being required to distribute 90% of their taxable income to shareholders each year.  Because of their low reinvestment, their value grows very slowly despite often being held for the long term with hopes of appreciation.

REITS handle large portfolios of real estate—or mortgages on real estate.  Most broad market index funds already include REITs.  Investing in a REIT is similar to investing in an individual stock in that the performance—and risks—are very dependent on the company that owns the properties.  You will most never meet the people managing and acquiring the properties, and you will not get to choose which properties your money goes to.