Poll: Real Estate Is the Best Investment

But Do Americans Know Best?

Poll: Real Estate Is the Best Investment
July 2, 2014

Gallup conducts an annual survey on American's perceptions of the best long-term investments, and the 2014 results continue recent trends. Given the housing crash at the end of the last decade, you would think housing might fare poorly in the survey, but that is not the case.

The poll gives five categories to choose from: Real Estate, Gold, Stocks/Mutual Funds, Savings Accounts/CDs, and Bonds. Real estate nudged ahead of gold in last year's poll, and it is pulling away as the solid preference in the 2014 poll. 30% of the respondents cited real estate as their preferred investment, followed by a tie between stocks and gold at 24%, 14% preferred savings accounts, and bonds brought up the rear at 6%.

Traditionally safer -- and lower-returning -- investments in savings accounts and bonds continue their slow decline in this survey. The other three categories seem to be following their price volatility.

Gold has always scored high in perceived investment value, as it has throughout history. When gold was included in the survey in 2011, it claimed the highest preference by far at 38%, with the other investments clustered from between 10-19%.

This makes sense given the markets at the time of the survey. Home prices were bottoming out, and the stock market was experiencing a relatively small dip as it recovered from the low point in early 2009. Meanwhile, gold was approaching its high point of just over $1900 per ounce, and it had been on a seven-year run of increases (up from $400 per ounce in 2004).

Since that time, what has happened?

Gold has seen a steady decline to its current price near $1250 per ounce, and its short-term investment appeal has dropped accordingly. However, it is still viewed as a valuable hedge against inflation and future political or economic chaos.

The stock market has charged into record-high territory, and the perceived investment value of stocks is rising as well – although not as quickly as expected given the gains. There are so many mixed economic signals and competing predictions of bear and bull markets that the average investor likely does not know what to think.

Real estate, on the other hand, is in a slow recovery with occasional upward spikes. The perceived value seems to have risen more sharply than should be expected – perhaps investors believe there is no place to go but up.

Intuitively, one would think the average American would have a bias toward real estate. After all, home ownership is part of the "American Dream," and a house is probably the largest investment most will ever have. However, real estate as a personal home -- and real estate as an investment such as units in a Real Estate Investment Trust (REIT) -- are entirely different propositions.

To illustrate the differences, Mitchell Tuchman of MarketWatch relayed information from a J.P. Morgan report comparing 20-year annualized returns on investment types. The results: 11.2% for REITs, 8.4% for gold, 8.2% for the S&P 500, 6.3% for bonds, and 2.7% for home ownership. REITs are excellent long-term investments, but are REITs what the average respondent is referring to in the poll? Probably not.

The main problem with polls of this type is that people appear to be basing the best long-term investment on relatively short-term results. A long-term view and diversification is important for any successful portfolio, to minimize the effect of volatile cycles of certain investments.

If you need any further evidence, the average success of investors during the 20-year period listed above was 2.3%. They couldn't even top inflation, which stood at 2.5%.

In short, have a preference if you like, but diversify according to the relative risk and how they meet your financial goals.

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