"Only shares pay off as a long-term investment". This prejudice remains stubbornly in the minds of many investment advisors and investors. But there are alternatives that could outperform stock investments: Real estate.
A recently published working paper by the Federal Reserve Bank of San Francisco shows that the long-term performance of equities is by no means unbeatable. The paper is based on a study by five authors, including Katharina Knoll of the Deutsche Bundesbank. The economists examined which asset classes are most worthwhile for investors from a risk and return perspective. The result is surprising.
Return the same, risk lower
Investors want to invest their money with the highest possible return but the lowest possible risk. Leaving risk aside, stocks and real estate are the most promising ways to increase one's wealth over the long term. The real return on a stock portfolio averages more than 8 percent. Real estate investors achieve only marginally lower returns.
But there is one crucial difference: volatility. Share owners go through various phases in which their securities can fluctuate, sometimes very strongly. Even a well-diversified portfolio shows strong volatility - depending also on economic and geopolitical circumstances. Residential real estate, on the other hand, fluctuates much less in value than stocks, as the economists found in their study.
Real estate investments are thus capable of solving the dilemma faced by many investors who have to choose between return and risk. One of the authors of the study, Moritz Schularick, who is an economics professor at the University of Bonn, is convinced: residential real estate is a very lucrative Investment and relatively safe. In fact, Schularick considers residential real estate "the best investment you could make in the past 140 years from a risk-return perspective."
The expert explains why real estate is a relatively safe asset class in the event of strong price development with the special features of the real estate market. Compared with the stock market, it is less liquid. Even during a recession, rental income remains largely stable, while companies certainly have room for maneuver in dividend payments and also use this in economically more difficult times, and in the worst case scenario the distribution can even be cancelled. In addition to the relatively high resistance to crisis, real estate has another advantage, according to Schularick: "There are a number of government incentives to acquire real estate," explains the expert. In addition to state subsidies for one's own residential property, there are a number of other state allowances or tax advantages for property owners.