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! 

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Manpreet Jassal

@mjassal

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How Vanguard does “social media” better than most companies @Vanguard_Group

I started investing last year after doing many months of research on where I should put my money. I ended up going with Vanguard and could not be happier. I am a big fan of indexing and fortunate enough to have Vanguard index funds in my 401k at work. (BTW, I recommended that everyone have index funds in their 401k – you can thank me after 25 yrs)

Being a marketer, I definitely follow Vanguard on Twitter and Facebook to see how a financial powerhouse like them use social media.  To my surprise, they are awesome. Social media is all about customer engagement but most companies use it as just another distribution channel. Social is all about engaging with your user base.  Getting feedback, answering questions and thanking your users from time to time is what its all about! Of course you want to push your content through social channels but it should only be about 20% of what you should do.  Vanguard has it all right.  I have asked questions through twitter, commented on Facebook, asked for some SWAG through these channels and received a response within 24 hours (and also my swag within a week). They always end the conversation with saying thank you to me for engaging with them.  They do A LOT more but I would encourage you to engage with them to find out for yourself.

The best surprise so far:  I received a thank you card from them for engaging on Facebook. Which is a great idea and was shocked to see it in the mail.  Even more shocking they gave me an extra blank thank you card with a note saying:

“Pay it forward! Use this extra note to thank someone who has inspired you to be a better investor!”

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How cool is that?  I would of never expected to get anything from them but it was cool to get a handwritten note mentioning my Facebook interaction signed by the person who I was connecting with at Vanguard. 

Vanguard my hat goes off to you for making me a better marketer. Keep on doing your thing.. I will always be a customer and a fan.

Thank you for doing social right! #Vanguarding

@MJASSAL