Luckily, I came across an economic study that analyzes a bunch of investments over the last 145 years! Let me share what I found from it about real estate and stocks.
Investment return always seems to be the headliner when analyzing investment options so I will start with that one. It’s worth pointing out risk exposure is just as important though.
Stocks average yearly return: 6.89%.
Real estate average yearly return: 7.05% a year.
Note: For real estate it is specifically rental properties analyzed.
As you can see holding rentals vs stocks provide a comparable return, with real estate having the slight edge at .16% better per year.
The Sharpe Ratio is used to help investors understand the return of an investment compared to its risk. The higher the Sharpe Ratio the better risk-reward you are getting.
We must remember, investing isn’t just about making returns, it about mitigating losses and keeping what you’ve earned.
Sharpe Ratio for Stocks: 0.27
Sharpe Ratio for Real Estate: 0.70
This data is what has me excited about Real Estate vs. Stocks. Basically stocks are 2.5 times more risky relative to there return than investing in real estate.
Uhm, yeah. I’m sold!
The point is on a high level real estate provides me comparable returns with a lower risk profile, thus is the better primary option for me and my risk tolerance.
You must understand what your risk tolerance and what your goals are and then invest accordingly. We all have our own paths.
Published by ScaredyCatGuide
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