Real Estate Returns VS. Stock Market Returns

real estate returnTruth be told, comparing historical stock market returns with real estate returns is an apple to oranges affair but it is still possible to get a general idea of how each one fared over a specific time-period through Exchange Traded Funds (ETFs) and their historical returns in asset value.

First, let us define what an ETF is:

An ETF is a security that holds and tracks a collection or group of securities (i.e., stocks). ETFs are listed on an exchange just like a stock and therefore trade just like stocks.

For this particular example, the following ETFs will be compared as they give a good indication of the overall results of the U.S. Stock Market and U.S. Real Estate over a 10-year period. :

  • S&P 500 ETF Total Return (SPY)
  • Vanguard Real Estate ETF Total Return (VNQ)

At the time of this writing, the 10-year average return for SPY was 11.39% while the average return during the same period for VNQ was 8.68%.

This, of course, does not include the dividend yield or even rent paid to the investor during the given period.

Again, measuring stock market returns to real estate investment returns does not give a clear indication of which one offers the investor a better absolute return but it does help to show that both their asset values do increase at a decent rate over time.

If there were a way that rental income could be averaged and factored in alongside real estate asset values during a given time frame, there would more than likely be an even smaller gap between the average annualized rate of returns between the two asset classes during the measured period.

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