The question of where to invest has fueled many an analyst thinkpiece and (often uninformed) dinnertime debate — some swear by government bonds while others will eschew anything that is not, like real estate, out where they can see it.
An annual Bankrate survey consistently finds that significant numbers of Americans view the stock market as something risky while considering real estate or even cash to be the better investments.
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For most people, the home they live in is indeed their biggest investment and source of financial security — a recent Realtor.com report found that the median single-family property in the U.S. gained 6.26% of its value from a year ago, 32.88% from three years ago and 48.95% from five years ago.
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This Investment Category Gained Most Short (And Long) Term
Amid skyrocketing housing demand seen over the last few years, returns on real estate have been significantly higher than the historical norm.
The stock market, which the analysis based on the performance of the S&P 500, had better long-term returns of 40.9% over three years and 51.9% over five but lost 2.9% since 2022.
This is largely due to economic uncertainty around a looming recession and the war in Ukraine.
"The market is going to go up and it’s going to go down," Daniel Johnson, a financial planner at RE|Focus Financial Planning, told Realtor.com. "Over the long term, it’s going to be very important just to have had held on to those investments."
Bonds, or a type of loan one makes to the government, have always been considered the most low-risk investment. The 2023 average 10-year U.S. Treasury bond rate will gain 3.6% while the average 2018 average 10-year U.S. Treasury bond rate will gain 2.91%.
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Notoriously volatile cryptocurrency is the opposite in the sense that those who bought and sold at the right time became very rich (something that is much less likely to happen with a bond) but the downfall can also be significant.
Bitcoin is currently on the downfall and fell 27.4% in the last year but had formerly been on a massive surge — over the last five years, it gained 218.3%.
Report after report show that stocks and bonds are still a tangled web to wide stretches of the population. Real estate is more attractive both due to easy access and the high returns seen over the last few years.
"Each investment has its own unique risks, potential rewards, and barriers to entry," Anna Sergunina, CEO of MainStreet Financial Planning, told Realtor.com. "Homeownership and flipping require significant capital and expertise, while stocks, REITs, and bitcoin can be more volatile. Bonds, CDs [certificates of deposit], and money market accounts offer lower risk, but potentially lower returns."
For those who invest professionally, home-flipping brought in an average of 26.9% in 2022 and and 47.3% in 2017. The high year-to-year march reflects both the sky-high growth during those years that is now starting to reverse itself and the strategy of finding markets poised for "explosion."
Another strategy is to put money into a real estate investment trust or a pool of people "crowdfunding" constructions of buildings and other commercial real estate.
This type of fund is more volatile given the still-emerging office future post-pandemic. Returns from real estate investment trusts fell by -19.78% between 2022 and 2023 but gained a respective 34.22% and 31.71% in the last three and five years.
