The Stock Market or Real Estate: Which is the Better Investment?

Having earned my MBA and spent an inordinate amount of time reading books about the stock market (the best is "A Random Walk Down Wall Street") and living in the trenches of the real estate business, I find it very interesting the attitudes the public has about both. Just a couple of days ago, the DOW lost almost 10% of its value in little over 30 minutes. No one jumped out of any windows. There was little panic, and no one sold their portfolio over this decline.

And yet, real estate prices have declined approximately 25% from the peak in North Orange County over a 4 year period, and yet the news reports on this on a daily basis. Did you know that the stock market (the DOW) has not changed in net value since 1999? It has gone up and down over this 11-year period and if you timed it perfectly, you may have made a boatload of money, but if you bought the DOW 11 years ago, it has not gone up at all. In fact, if you bought the DOW in 1999 by a money manager or through the typical mutual fund, it may have cost you 1% per year, or over 10% to not make any money.

Real estate, on the other hand, went up almost 80% to 2006 and then declined 25%, but the typical homeowner is still up 35% or so from 1999. For the most part, it has been poor financial decisions by homeowners using their homes as ATM to finance improvements, vacations, businesses and "toys". I hope that this recession forever changes how we view our properties and not use our home as a tool to hopefully increase our net worth. Real estate is a good investment because with fixed financing, the payments are stable, no landlord can call and ask you to relocate, and it offers a place to call "home" and make memories.