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Woefully Misinformed

Most American investors are woefully uninformed. The past three years of Bankrate.com surveys show that Americans favorite long term remains real estate, despite the fact that, over the last decade, you could hardly have done worse.

In their latest survey, 27% of us preferred real estate for a 10+ year investment period while 23% chose cash (boy, do we have a lot to learn). The more intelligent 17% of the population preferred stock (that's common stock, not preferred stock), and precious metals and 5% selected bonds.

Here are the latest results for each of these vehicles over ten years:

  • Real estate has lost an average of 0.4% per year.
  • Vanguard Prime Money Market (a cash proxy) returned about 1.5% per year
  • Barclays US Aggregated Bond Index average about 4.5% per year
  • Despite the 2008 market crash, the MSCI world stock index would have returned almost 7% per year.

Why do we prefer investing in an asset that has proven riskier than owning the entire stock market. When it comes to owning individual houses (the way most invest in real estate), the answer may lie in the fact that we understand something that we can see and touch. Plus, home prices aren’t adjusted and quoted minute by minute. We don’t  know what they’re worth until we need to buy or sell. Even then, home prices are far less accurate than stock prices because there are fewer participants in the local real estate market.

When it comes to investing, we continue to be our own worst enemies.

Read a CNBC article on this topic

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