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Pop quiz: What’s the best way to invest money that you won’t need for at least a decade?
If you choose real estate, you’ve got company — although you all might want to rethink your choice.
A recent Bankrate survey of about 1,000 adults living in the continental U.S. found that most believe real estate is the best investment. Answers to the question above included:
- Real estate: Cited by 28 percent of survey respondents
- Cash investments: 23 percent
- Stock market: 17 percent
- Gold or other precious metals: 15 percent
- Other: 6 percent
- Bonds: 4 percent
This was the fifth consecutive summer that Bankrate has conducted this survey. The first two years, cash was the most common response, and for the past three years, real estate has been most common. Stocks have never ranked higher than the No. 3 response.
So what is the best long-term investment?
It so happens that now is a great time to sell your home for a killing. Home prices are moving higher, with housing demand recently reaching a new high and housing inventory falling to historic lows.
In general, though, the best place for the average person to invest money over the long term is in the stock market.
This is particularly true for money you will need for retirement. If you’ve already amassed retirement funds galore and have other savings to toss around, by all means, consider real estate. It has added to Stacy Johnson’s wealth.
But as the Money Talks News founder points out in “Beginning Stock Investor? Here’s All You Need to Know”:
“Depending on how you measure it, stocks have averaged 8 percent to 10 percent annually over the last 100 years. Of course, stocks entail risk; that’s why they pay more.”
The risk you take by investing in stocks is inversely proportional to your time horizon, though, meaning stocks become less risky the longer you can leave your money invested in them. That’s why Stacy has said countless times that you should only invest long-term money — money you won’t need for at least five to 10 years — in the stock market.
As Stacy and other experts like investor extraordinaire Warren Buffett advise, you can further mitigate risk by avoiding individual stocks and sticking with passively managed mutual funds, also known as index funds. After all, President Donald Trump would be worth $10 billion more if he’d invested in index funds instead of real estate.
This doesn’t mean you should put all of your money in stocks, though. Stacy has a formula to help you figure out what percentage of your savings should go into stocks. You’ll find it and other risk reduction advice in “11 Tips for Sane, Successful Stock Investing.”