Which is a better investment: Real Estate vs. Stocks

What is a better investment, buying real estate or investing in stocks?  

I grew up in a family and culture where getting a house is the best thing you can do for yourself. I used to think that to until recently. I decided to crunch the numbers on this and share with you what I learned. I live in NY so I will be using NY real estate numbers. I used calculators from mortgagecalculator.org and bankrate.com (which I think are the best ones out there).  Lets start with the house.

House – $500,000

20% Down payment: 100,000

Interest rate:  4.25% (25 yr loan)

Loan: $400,000

Monthly Payment: $2,687.79

Total Interest Paid: $250,085.72

Total Tax Paid: $156,250.00 (1.25%)

Total cost after 25 yrs of owning a house: $806,335 + $100,000 (down payment) = $906,335

Remember this is just straight cost of the house with no maintenance, repairs, etc. Now you fully own your house and it just kept up with inflation or maybe not. You have to ask yourself house worth $906k after all of this time? Depends on the housing market at that time. Now lets take a look at putting your money in the S&P 500 index fund. I will be using the same numbers.

Vanguard S&P 500 index fund – $100,000

Compound interest rate: 11% (since 1976 this is what the fund has returned, on vanguard.com)

Total Expense ratio: .05% (very very low cost and low turnover)

Total fund value after 25 yrs: $1,342,666 

Now lets say that you start with $100,000 and put in only $600 a month. If you think 11% is too high I have showed you other %’s as well.

At 11%: you will have: $2,272,937

At 10%: you will have: $1,862,379

At 9%: you will have: $1,527,040

At 8%: you will have: $1,253,319

At 7%: you will have: $1,030,013

At 6%: you will have: $847,913

At 5%: you will have: $699,452.

This is how much cash you will have that is liquid at your disposal. There is a big difference here of about 400k and that is just stopping at 25 yrs. If you let your investment grow and live after 25 yrs without putting a dime into it it will skyrocket.  If you left it in for just another 5 years your total in the index fund will be $2,255,139. I highly doubt the house will be worth that much. That said, I do think buying a house at the right price is great since its yours forever and you can leverage it as well for a loan, etc. But as an investment it does not compare to the value of stocks at all. If you want to invest in real estate without being a landlord because you think its better than stocks you can just invest in a REIT index fund. Remember, all these numbers are just math not an opinion! 

Image

Manpreet Jassal

@mjassal

Advertisements

Santa Claus is a Marketer!

Everyone knows Santa Claus as jolly old, St. Nick. Every Christmas, he is celebrated all throughout the world. Many movies have starred Santa Claus, from Miracle at 34st to Tim Allen’s Santa Clause movies. But how did Santa Claus become the phenomenon that he is today? I don’t want to burst anyone’s bubble, but it’s with MARKETING!

The American image of Santa Claus was first created by illustrator Thomas Nast, who depicted a stout Santa for Christmas issues of Harper’s magazine from the 1860s to the 1880s. It was still not part of American culture until the world’s biggest brand came along and decided to market Santa. Starting in 1931, magazine ads for Coca-Cola — that’s right Coca-Cola (the world’s most recognized brand) featured St. Nick as a kind, jolly man in a red suit. D’Arcy Advertising Agency worked with The Coca-Cola Company on a campaign to show the wholesome Santa as both realistic and symbolic. Illustrator Haddon Sundblom painted a plump old man with a white beard, wearing a red and white outfit.

The Coca-Cola Santa made its debut in 1931 in The Saturday Evening Post and appeared regularly in that magazine, as well as Ladies Home Journal, National Geographic, The New Yorker and others. Coca-Colaadvertising showed Santa delivering and playing with toys, pausing to read a letter and enjoy a Coke, playing with children who stayed up to greet him and raiding the refrigerators at a number of homes.

Because magazines were so widely viewed, and because this image of Santa appeared for more than three decades, the image of Santa most people have today is largely based on Coca-Cola’sadvertising. The red and white Coca-Cola colors worked seamlessly into the Santa campaign.

In short, to answer everyone’s question “Yes, I believe in Santa Claus.”

(for more information please visit the Coca-Cola website)

Manpreet Jassal
@mjassal