Best Long-Term Investments That Outperform Real Estate Every Time

Gallup’s polling results show that since 2014, investors have ranked real estate as the best long-term investment. The survey conducted in 2024 found that 36% of Americans ranked real estate as their top choice, far higher than the 22% who preferred stocks and the 18% who selected gold. But does real estate really offer the best long-term returns?

Considering how well real estate has performed since the Great Recession of 2008 and, more recently, the recovery from the coronavirus pandemic, the Gallup survey results may not come as a surprise. Nowadays, a large number of Americans either personally witness the rise in real estate values or know friends and colleagues who have done extremely well. However, over longer time horizons, some other asset classes—some of which are mentioned below—have outperformed real estate.

Even if an investment performs better overall, it is crucial to remember that no investment is “always better” than another. Individual investors have different financial goals and risk tolerances, so choosing investments that suit your needs is more essential than choosing ones that might be statistically better. In light of this, the following investments may prove to be superior to real estate in the long run.

Stocks

Compared to real estate, stocks have an unbeatable track record in terms of absolute performance over the long term.

The S&P CoreLogic Case-Shiller U.S. National Home Price Index indicates that during the last ten years, real estate has returned 6.99% annually, and during the last five years, it has returned 9%. These are substantial returns that happened during times when real estate was generally doing very well. Nevertheless, throughout these time periods, the S&P 500 index posted average annual gains of 10.87% and 13.4%, respectively, handily outperforming the real estate market.

Additionally, this superior performance persists over extended periods of time. Experian estimates that through 2023, the S&P 500 will have returned 8% annually, while the housing market will have returned 5.4%. It is simple to conclude that stocks are preferable to real estate when one considers the fact that the S&P 500 has never experienced a 20-year rolling period in which it has lost money.

Bonds

Bonds outperform real estate even though they don’t show the same dramatic outperformance figures. Bond returns over the last 30 years have topped real estate returns of 5.4% per year, according to Charles Schwab.

Of course, there are variations from year to year. For instance, real estate saw a return of 5.67% in 2022, but corporate bonds saw a decline of 15.14%. But bonds are better in the long run.

The principal return guarantee is one of the extra advantages that bonds have over real estate. Although the promise is only as strong as the issuer’s finances, it can be very reliable for reputable businesses or US Treasury bonds.

Tax-Advantaged Accounts

While not strictly speaking an “investment,” a tax-advantaged account may be a better option than real estate for your funds. Tax-advantaged accounts, such as 401(k) plans and IRAs, allow you to deduct contributions from your taxes while also offering tax-deferred growth. Although there are some tax advantages associated with real estate, the deductions you receive for making contributions to your accounts can total up to 25% of your annual income, contingent upon your tax bracket.

Considerations for Real Estate Investing

The main disadvantage of real estate investing is its lack of liquidity. Selling a property can take days, weeks, or even months, in contrast to liquid assets like stocks, bonds, or exchange-traded funds, which can all be done practically instantly.

Additionally, real estate can be costly. To purchase and sell real estate, you’ll need to pay a hefty down payment that can reach tens of thousands of dollars or more, in addition to several other fees and commissions.

Real estate is another continuous cost. In contrast to stocks and bonds, which merely yield returns through capital gains and/or interest or dividend payments, real estate necessitates yearly upkeep, property taxes, and other related expenses.

Real estate values can also be very regional. Stated differently, the mean annual yield for the entire housing market might not necessarily apply to your specific investment.

Real estate investing has a double-edged effect because, despite its reputation for conservatism, most real estate investments involve high levels of leverage. You’ll probably be borrowing between 80% and 95% of the value of your house unless you’re buying it outright. Any price fluctuations are amplified significantly as a result, both positively and negatively.

Conclusion 

Real estate investing has undoubtedly many advantages. While rental properties can produce monthly income and offer various tax benefits, your primary residence serves as a place of refuge and memories. Although most Americans believe real estate is the best investment option, other options can outperform real estate investing in terms of liquidity and long-term returns.