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How Do People Feel About Real Estate Versus Stocks?

Apr 24, 2020 by Matt Frankel, CFP

What is the best long-term investment you can make? Surely there's a solid case to be made for the stock market, as the S&P 500 has historically returned 9% to 10% on an annualized basis over long periods of time. Real estate can offer excellent long-term returns as well and can be a great way to build passive streams of income.

We recently got a look at a new survey that shows which asset classes Americans think are the best long-term investments. It isn't a big mystery why stocks and real estate were at the top. However, the order and difference between the top two might come as a bit of a surprise.

What is the best long-term investment?

According to data from Gallup's annual Economy and Personal Finance survey, Americans' views on certain asset classes have shifted a bit. Here's a look at what survey respondents say are the best long-term investment classes now, compared to the results of the same survey in 2019:

Investment Type Percentage of Americans Who Say It's the Best Long-Term Investment Class Change From 2019
Real Estate 35% None
Stocks or Mutual Funds 21% (6%)
Savings Accounts or CDs 17% +2%
Gold 16% +2%
Bonds 8% +3%

Data source: Gallup. Categories don't add up to 100% because "other" and "no opinion" were also options.

The Gallup survey was conducted from April 1 to 14, well into the COVID-19 pandemic and the resulting stock market plunge, so it's not surprising that investors might be hesitant to put their money in the stock market. And it certainly makes sense that more people gravitated toward "safer" assets like savings accounts, gold, and bonds than a year ago.

However, one interesting takeaway is that not only did real estate get the most responses for the eighth consecutive year, but the gap between the percentages of Americans who prefer real estate and stocks has never been wider.

Why might Americans favor real estate over stocks?

Given the unprecedented volatility in the stock market, there are some good reasons why Americans might be more attracted to investing in real estate:

Recession resistance

There aren't any recession-proof investments that are capable of strong long-term returns, but some are more resistant to the effects of recessions than others. Real estate tends to hold up better from both a market value and income perspective during tough times than stocks.

Its illiquid nature

Generally speaking, liquidity is considered to be one of the negative factors of real estate versus stocks. In other words, one of the benefits of investing in stocks is that you can buy or sell them whenever you want with the simple click of a mouse. On the other hand, in turbulent times, the illiquid nature of real estate can be a benefit. If you own a rental house, for example, you aren't going to watch its market value rise and fall as your stock portfolio does. In short, the lack of liquidity and clear movements in market value can help real estate investors rest easy during tough times.

Stable and passive income

Real estate investments are designed to produce steady income streams that increase over time. Assuming you aren't managing rental properties yourself, they are also very passive in nature.

Tax advantages

When it comes to tax advantages, real estate is far superior to stocks, especially for investments outside of retirement accounts. Real estate investors can use depreciation to reduce their taxable rental income, and strategies like 1031 exchanges can allow investors to defer capital gains tax indefinitely on their rental properties.

The Millionacres bottom line

Here at Millionacres, we're obviously a little biased when it comes to the best long-term investment type. However, the fact is that there are some characteristics of real estate investing that make it a preferable choice for long-term investors, especially during turbulent economic times.

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