By Mike Ballard
The S&P 500 and private long-term real estate holdings are two popular investment options for those looking to grow their wealth over the long term. Both asset classes have their own unique set of benefits and drawbacks, and the decision of which one to invest in ultimately depends on an individual’s investment goals and risk tolerance.
One of the main benefits of investing in the S&P 500 is that it provides a broad exposure to the U.S. stock market, with the index comprising 500 of the largest publicly traded companies in the country. This means that investors are able to achieve diversification across different sectors and industries, which can help to mitigate the risk of any single company or sector underperforming. The S&P 500 has also historically delivered strong returns over the long term, with an average annual return of around 10% over the past 20 years.
On the other hand, private long-term real estate holdings offer a number of benefits that make them an attractive investment option. First, real estate can provide a steady stream of passive income through rental payments, which can be a particularly appealing feature for those looking to generate a regular source of income from their investments. Additionally, real estate can be a more tangible asset that investors can touch and see, which can provide a sense of security and stability. And like stocks, real estate can also appreciate in value over time, providing the potential for capital gains when the property is eventually sold.
For the last 25 years, the stock market has had an average return of 7.49 percent. For the 50-year period from 1953 to 2022, there have been 16 years, or 32 percent of the 50 years, that had negative returns. The average percentage loss has been 12.3 percent in the 16 years with losses. So, typically, one has two up years and one down year.
According to the National Council of Real Estate Investment Fiduciaries (NCREIF), as of March 2021, the average 25-year return for private commercial real estate properties held for investment purposes averaged annualized returns of 10.3 percent.
However, it’s important to note that investing in real estate also comes with its own set of risks and drawbacks. One of the main risks is that real estate is not a true liquid asset, meaning that it can take longer to sell a property compared to more liquid assets like stocks. This can make it more difficult for investors to access their money if they need it in a pinch.
Given these historical returns, $10,000 invested in the S&P 500 on January 2, 1988 (25 years ago) would be valued at $60,799. That same $10,000 invested in multifamily real estate would be valued at $115,981.
Overall, both the S&P 500 and private long-term real estate holdings can be good investment options for those looking to grow their wealth over the long term. The S&P 500 offers a broad exposure to the U.S. stock market and has a history of delivering strong returns, while private long-term real estate holdings offer the potential for passive income and appreciation in value. Ultimately, the decision of which one to invest in will depend on an individual’s investment goals, risk tolerance, and financial situation.
About the Author: Mike Ballard is founder and CEO of Camino Verde Group, a real estate investment and management firm that works to create passive income and build wealth through selective investments in real estate. Mike has been involved in the development and/or renovation of multifamily, retail and office properties as well as data centers. He is currently involved in the development of more than $200 million in multifamily or mixed-use real estate in seven states including Nevada, California, Utah, South Carolina, Texas, Iowa and Kentucky. Mike was a founding member of the board of the Lied Institute for Real Estate Studies at University of Nevada, Las Vegas and also helped with the formation of the local National Association of Industrial and Office Properties (NAIOP) and Construction Financial Management Association chapters. Contact Mike at mike@caminoverdegroup.com.