Let's have a little argument, shall we? I'll start by pointing out how effective stock market investing can be over the long run. The market has averaged an annual gain of around 10%, after all, over many decades.

Hold on, you'll say. A lot of stocks haven't come close to earning 10% in recent years. Here's just a short list of well-known and well-respected stocks and how they've done over the past decade:

Company

CAPS Rating
(out of 5)

10-Year Avg. Return

Wal-Mart (NYSE:WMT)

***

0.8%

Procter & Gamble (NYSE:PG)

*****

3.8%

PepsiCo (NYSE:PEP)

*****

8.2%

Colgate-Palmolive (NYSE:CL)

****

6.0%

Nike (NYSE:NKE)

****

9.5%

Target (NYSE:TGT)

***

4.9%

Walgreen (NYSE:WAG)

****

5.1%

Data: Morningstar, Motley Fool CAPS.

See? You'll say -- they didn't average 10%. True, I'll concede. But they did handily beat the market, as the S&P 500 averaged an annual 0.5% loss during the decade. And that loss isn't the norm. Over most long periods, stocks have been a great place to have your money.

Location, location, location
So now you trot out your big gun. You're thinking that real estate is the place to be. You know a bunch of people, for example, who seem to have made a killing in it. Well, yes, I'll counter; there are some big profits to be made in property, and before the housing bust, prices had been on a tear. But you really have to know what you're doing, and real estate prices go down lots of times. Plenty of people have lost money in it.

Here's a scary statistic: According to Yale professor Robert Shiller, who helped develop the well-known Case-Shiller home-price index, home prices in the U.S. rose just 0.4% after inflation from 1890 to 2004. That's darn close to zero! Meanwhile, during a similar period, stocks averaged close to 7% after inflation.

The bottom line
So go ahead and buy some real estate -- buy a home to live in, for example. After all, interest rates are near record lows and many home prices have fallen quite a bit lately. But think twice before looking at real estate as an investment. Being a landlord isn't all it's cracked up to be. And you can't get in and out of homes as easily as you can stocks -- even including real estate stocks.

Just as undervalued homes abound these days, so do undervalued stocks. Let us point you to a host of them via our Motley Fool Inside Value newsletter, which you can check out for free.

Longtime Fool contributor Selena Maranjian owns shares of Wal-Mart, PepsiCo, and Procter & Gamble. Wal-Mart is a Motley Fool Inside Value selection. PepsiCo and Procter & Gamble are Motley Fool Income Investor picks. The Fool owns shares of Procter & Gamble. Try any of our investing newsletters free for 30 days. The Motley Fool is Fools writing for Fools.