Why Real Estate Is Better Than Stocks and Bonds

Note: this is Chapter 2 of an entire guide on Why Real Estate Investing?

With commission-free trading and mobile applications becoming the new trend in investing, there has been a heavy emphasis on trading in the stock market. However, real estate is still an American favorite. Your parents will probably tell you "buy a home as an investment!" In fact there's more money in real estate than in the stock market — an estimated $50 trillion dollars in 2020 versus $31 trillion in the stock market.

The stock market offers a number of benefits including, but not limited to, ease of access and high liquidity. And we believe that equities (like stocks) are part of a larger investment portfolio allocation.

But why real estate?

Real estate offers a historically low volatility market, an automatic inflation-hedge, and a completely separate market from stocks and bonds.

Volatility

We've all heard the advice...

Invest in the S&P500 and you'll become a millionaire!

As ETF's and Mutual Funds have become the most popular investment vehicles for wide scale diversification, the stock market has entirely become more correlated. There is a heavy concentration of money in ETFs and Mutual Funds, which makes the consolidation of the stock market much greater since only a few investment management companies are able to make market-wide decisions.

To back this up, over that past 25 years, we've seen the stock market lose nearly half of its publicly traded companies (from ~8000 to about ~4000) according to World Bank.

Moreover, since the recent movement towards democratizing stock investing led by commission-free brokerages, there is more inexperienced investors in the market today. We believe this is a double-edged sword. On one hand, it is great that more people are getting to investing early on, but on the other hand, large numbers of inexperienced traders can cause drastic price changes.

We've seen the widescale effects already — the S&P500 has recently been seeing large daily movements of over 3%.

Therefore, if your entire investment portfolio consisted of only stocks and bonds, your investments are now subject to much more risk than previous generations.

Automatic Inflation Hedge

Here's what an inflation hedge is: