54 million Americans say real estate is their favoured investment option
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A new report has revealed that 54 million Americans consider real estate to be their favoured long-term investment strategy, highlighting the zero-risk, zero-return mentality of many of today's investors.
The report from Bankrate.com found that 25 per cent of Americans saw real estate as their top investment option for savings that they were keen to tie up for a decade or more, followed by cash investments for money they did not need to access for 10 years.
In third place in terms of investment popularity were stocks and precious metals, such as gold, with just 16 per cent reporting these assets as a top choice. Bonds were found to be the least popular current investment choice, with just five per cent of investors saying they would opt for this asset class.
Greg McBride, Bankrate.com's chief financial analyst, said: "While cash investments are entirely appropriate for short-term needs, such as an emergency fund, they are completely inappropriate for long-term investment horizons. Returns on cash investments often trail the rate of inflation, with savers losing buying power as a result."
Younger investors aged between 18 and 25 were found to opt for cash as their investment of choice for money that they would not need to access for at last 10 years. The reason cash was chosen over real estate by millennials is due in part to the fact that they are less likely to own a property than older investors, according to a related report form the UK's Office of National Statistics. In contrast, older investors were far more likely to choose a property as their top choice for a long-term investment proposition.
Mr McBride added: "The preference for real estate is well suited for investment horizons of more than a decade, but the apathy many investors feel towards the stock market is detrimental to achieving their long-term financial goals."
The S&P 500 has risen by six per cent year-to-date, despite the current shifts in the turbulent stock market, while the majority of cash investments return yields of under one per cent, Bankrate.com reported.
Turning away from stocks as an investment option may not be entirely sensible, according to Avani Ramnani, CFP and director of financial planning and wealth management at Francis Financial, who urges investors to have a "very well-diversified portfolio that should include stocks, bonds, some alternatives and real estate."
"Over the long period of time, we've seen that the stock market returns between 6-7 per cent from a diversified portfolio," Ms Ramnani went on to say.
Sterling White, co-founder of real estate investment firm, Holdfolio, disagrees, saying that real estate is a far superior investment option than stocks: "Houses are tangible. You can physically see and feel the product. So you know where your money is going: It's going into that house. With stocks, you have no clue where your money is going."
However, Ms Ramnani argues that real estate is an "illiquid asset," and it is not something than can be "turned around overnight as it takes time to sell. "When you need the money, you don't know what the real estate market is going to do." She also makes note of the cost of maintaining a property, something which obviously does not need to be considered when investing in the stock market.