Americans prefer real estate for long-term investing

by Rincey Abraham

Fall afternoon in a typical middle class, southern American residential subdivision of homes that are built close together to maximize the land use by the developer and reduce the price of each home. Each home shares a similar contemporary build style with only minor paint or plan changes on the outside and inside. This subdivision is in South Carolina, USA.

Real estate is the preferred form of long-term investment, according to a new Bankrate report. This is the third straight year that real estate came out on top in this annual survey.

The report found that 28 percent of U.S. adults said real estate is the best way to invest money not needed for more than 10 years. The other preferred investments included cash investments (23 percent), the stock market (17 percent), gold and other precious metals (15 percent), and bonds (4 percent).

The only demographics that preferred stocks as a long-term investment were Republicans and households with annual incomes of $75,000 or more. Also, Baby Boomers and the silent generation were more likely to choose stocks than millennials and Gen X respondents.

Young adults split their preferences between real estate and cash (30 percent each) with stocks only making up 13 percent. However, the lack of wealth with young adults compared to older generations may make them less likely to want to take a risk, despite the fact that they have more time to earn and invest.

“Contrary to the notion that millennials don’t want to buy homes, their preference for real estate as a long-term investment is exceeded only by their counterparts in Gen X,” said Greg McBride, Bankrate’s chief financial analyst.

However, according to Bankrate, this might not necessarily be the best option for long-term investments. A study by professors of the London Business School found that between 1900 and 2011, housing provided returns of 1.3 percent per year after inflation, while stocks performed four times better.

Bankrate also found that over the past 10 years, which includes the financial crisis, stocks have returned an average of 8.6 percent per year, far outperforming money-market accounts and other cash investments.

“We’ve begun to see rising yields on savings accounts. However, the preferences for cash and real estate indicate that too many people are leaving money on the virtual table by failing to be sufficiently exposed to the stock market, where higher long-term returns are found,” said Mark Hamrick, Bankrate’s senior economic analyst. “This is especially the case for younger investors, who are in the best position to weather the inevitable short-term market volatility.”