Residential property vs shares since 1926

The residential property versus shares debate is popular and can be as fiery as political and religious debates. So I’m often asked about comparisons of the long term returns.

Following is some commentary I came across from Dr Shane Oliver, Chief Economist and Head of Investment Strategy at AMP Capital Investments. (Emphasis added by me.)

After allowing for costs, residential investment property and shares generate similar long-term returns. This can be seen in the next chart, which shows an estimate of the long-term return from housing, shares, bonds and cash.

Over the long term, the returns from housing and shares tend to cycle around each other at similar levels. In fact, both have returned an average of 11.5% p.a. over the last 80 years or so. While housing is less volatile than shares and seems safer for many, it offers a lower level of liquidity and diversifcation. The bottom line is, once the similar returns of housing and shares are allowed for, and these characteristics are traded off, there is a case for both in investors’ portfolios over the long term.


Source: Oliver’s Insights, Edition 37 – 25 November 2010, ‘Australian housing – is it a bubble? What’s the risk?’

In Investing, It’s When You Start And When You Finish

Is investing about timing the market or time in the market or…?

Ed Easterling of Crestmont Research has produced a very interesting illustration of your average annual return depending on when you bought and when you sold your investment. The chart is based on the Standard & Poor’s 500-stock index for the United States of America and goes back as far as 1920 (i.e. before the Great Depression.)

The  New Yorks Times have republished the chart here.

Not surprisingly using long term average returns is very deceiving. Your wealth creation will be greatly affected by the sequence of returns during your investment time frame.

For me this illustration reinforces the importantance of annually reviewing your progress and making adjustments to your strategy and saving rate.

It also reinforces the folly of blindly ‘investing‘ in the share market with a short term view, expecting to make great returns. Short-term trading is for professionals and those playing with loose change from their deep pockets.

(Thanks to loyal reader Gihan for alerting me to this illustration.)