If you could choose one asset to invest in for the long term, what would it be?
For years, Gallup has asked investors exactly that question, and since 2013 the most popular answer has been the same: real estate.
This year, those who favor buying property were the clear plurality with 36% of the vote. Stocks and mutual funds came in at 22%, gold at 18% and savings accounts and certificates of deposit at 13%. Only 4% of Americans would choose bonds, and 3% opted for cryptocurrency.
In some ways, real estate’s popularity shouldn’t be surprising. Who doesn’t know someone who bought a house years ago that’s now worth significantly more money? And unlike stocks, bonds or crypto, which can seem like ephemeral numbers in an account, real estate is a tangible asset.
Still, it’s worth questioning whether buying property makes sense for your personal financial plan, investing experts say.
“If we’re talking about long-term investing, the question is, what is the goal of the end investment?” says Nick Foulks, an advisor and director of communications strategy at Great Waters Financial. “Am I trying to produce income? Am I trying to produce wealth? Am I trying to produce security? It’s tough to say what the best long-term investing option is without knowing the desired outcome.”
History favors stocks over real estate
It’s worth noting that Gallup’s poll uses some amorphous terms. For one thing, a “long-term investment” means different things to different people. So does “real estate.” You can invest in real estate via real estate investment trusts, which trade like stocks, or ETFs that hold them. High net worth investors can enter into property deals that are structured more like private equity investments.
For many Americans, though, investing in real estate likely means buying a primary residence. As you pay down your mortgage, you build equity in a piece of real estate that also appreciates in value.
If we assume the best long-term investment means something akin to owning an asset that will help you build the most wealth for later in life, stocks have been a much better bet than real estate over the last few decades.
From the beginning of 1990 through April 2024, the S&P CoreLogic Case-Shiller U.S. National Home Price Index, which measures residential real estate values, has risen by 308%. Home prices, in other words, have quadrupled over the last three decades.
Over the same period, the S&P 500, a measure of the broad U.S. stock market, is up by 1,325%.
“You can’t negate the compounding power of stocks over the long term for any investor, especially young investors,” says Andrew Briggs, a wealth manager and director of portfolio management at Plaza Advisory Group.
While stocks have more of a reputation than real estate for declining sharply in value over the short-term, the market has trended steadily and prodigiously upward over time, he says.
“The history is there,” Briggs adds. “Starting in the 1920s, there are practically no rolling 10-year periods where equities have lost money.” Over rolling 20-year periods, there are none.
Real estate has virtues beyond return
The other major advantage of investing in the stock market: It’s easy to get started. Open a brokerage account, deposit the money you were planning to spend on lunch, buy some shares in an index ETF and presto — you’re now the proud partial owner of hundreds, if not thousands, of companies.
But a 15% down payment on a median-priced home will run you about $63,000. And in signing a mortgage, you agree to take on a significant amount of debt you have to pay back with interest. The average rate on a 30-year fixed-rate mortgage is currently north of 7%, according to Bankrate.
Yet, in Gallup’s survey, real estate is an even bigger winner relative to stocks among those who could least afford a home. Among Americans making less than $40,000 per year, 33% choose real estate as their No. 1 long-term investment. Gold comes in second place with 23% and savings accounts and CDs round out the podium with 20%. Just 14% chose stocks and mutual funds.
For many Americans, the best long-term investment doesn’t seem to necessarily be the one that is likeliest to deliver the highest returns, but one they perceive to offer safety and stability.
It’s OK if your home value doesn’t rise as much as you thought, since it still provides a place to live.
Some homeowners may also be able to extract some of their equity from the house in order to make a down payment on another one they rent out for income — a strategy known as house hacking. For certain people, “it can definitely make sense for building wealth,” Foulks says.
Ultimately, it’s probably smart to spread your bets across different assets, which are subject to different market forces and deliver different types of income, over the long term, says Brian Vendig, president at MJP Wealth Advisors.
“We allocate alternative investments for clients — including real estate — around a core, traditional portfolio [of stocks and bonds],” he says. “Real estate is not only a great hedge for inflation, but it also generates tax-advantageous income.”
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