Housing or Equities? The better long-term investment is…

THINK OUTSIDE THE BOX – the answer is certainly personal but why not diversify your investment portfolio and own both a rental property and invest in the markets?  Through a re – advancable mortgage you can pull out equity in your home for a down payment on an investment property AND to partake in the bond and equity markets through an investment strategy known as the Smith Manoeuvre.  The concept is to have your equity work for you and turn your “bad” debt into “good” debt.  Leveraged investing is certainly not for everyone but with sound guidance it can prove a great strategy to diversity your investment portfolio.

Written by  Christopher Myrick:

A new study from the Pew Research Center on whether equities or housing represents the best long-term investment suggests the answer depends largely on how you define “long-term.”

From the perspective of Canadian investors it also depends on how closely recent U.S. market trends reflect this country’s future performance.

That said, since the formal end of the recession, in early-2009, the U.S. stock market has recovered much more strongly than housing. As of Tuesday’s close, the S&P 500 was up more than 74% since the beginning of 2009. Home values, as measured by the S&P/Case-Shiller index, were up 9.3% between February 2012 and 2013, while the S&P index stands almost exactly where it did four years ago.

Go back to the beginning of 2000, when stocks were riding the crest of the dot-com wave, share prices crashed sharply and took years to recover. Housing, though, barely paused in its long upward march, peaking in 2006-07  before plunging. Over the 13-year stretch, the Case-Shiller index stood 46.6% higher in February than it did in January 2000, while the S&P 500 was up just 4% over the period.

However, using a “total return” variant of the S&P 500 that takes dividends into account, the research center notes that the S&P index is up nearly 43% since January 2000, matching the gain in the Case-Shiller.

The research does little to settle the argument over which asset class is better, but Pew notes that performance in either depends not just on which asset you buy but when you buy it.


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