This week, we’re busting myths about investing, so you’ll be better equipped to think rationally and make smarter decisions about how you invest your money.

Today myth is: Real estate is a better investment than stocks.

Buzzer! Wrong.

If you lean toward real estate as the better investment, consider the risk, lack of diversification, headaches, and lack of liquidity that real estate offers you.

Most people don’t have the assets to invest in more than a handful of properties. That’s a lack of diversification. Most people also only consider homes and not other types of real estate, like commercial properties. That’s a further lack of diversification if you’re just investing in one type of real estate.

Investing in real estate has a lot of headaches because you have to keep it up, paint it, change the lightbulbs, pay for a new roof - and if you’re not willing to do that, you have to pay someone to do it for you.

And then there’s the lack of liquidity. It can take months or years to sell a property. What do you do if you need money in an emergency.

And then there’s the massive debt that’s often required to invest in real estate.

Real estate isn’t a bad investment, but let’s be realistic about it. I meet a lot of people who have all of their net worth tied up in real estate who are happy to laugh and tell me what a joke the stock market is. But these same people don’t actually factor in the total costs of owning real estate. I often talk to real estate investors who own properties where they are losing $200/month or $500/month, but hey, they’re in a great location and it’s going to turn around real soon.

Stock market returns (as measured by the S&P 500) have averaged 7.2% per year for the last 20 years. That’s with 2 massive declines from the tech bubble burst and the great recession. 7.2% per year even with those big downturns thrown in - pretty impressive. You quadrupled your money as a stock market investor over the last 20 years, all while not changing a single light bulb or having to evict any delinquent tenants.

The average home price in the U.S. increased by an average of 3.4% over that same time period - less than half of the return in the stock market.

That’s it for today. Thanks for listening.

Tomorrow I’m going to tell you what I really think about gold.

My name is Ashley Micciche and this is the One Minute Retirement Tip.

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