Value of a house compared to a mutual fund/401k?

Question

How much does a house increase in value compared to the average mutual fund or 401k?

Answer 1

A good index fund will beat the return on a house by a long margin.  Commercial real estate can actually compare very favorably to the stock market, but the return on a house is dismal when compared to the S & P 500.

Answer 2

long term the equity markets outperform the housing market 8% to 5%.  However, due to the leveraging effect you can make a quick killing in real estate that is more difficult for most to do in the equity markets.  In addition there are certain areas of the company that have spikes in the real estate markets (ie L.A. and Florida) where it's much easier to hit the  home run while the equity markets are more difficult to predict.  That being said....over time 8% versus 5% is pretty difficult to argue with.  AND the prior posters comments about liquidity are spot on.  Not to mention the fact that you have to liquidate your entire holdings rather than just a piece of it if you are using housing to support your retirement savings. Last point to consider...diversity in investment is best way to hedge your bets.  difficult to do if you're in an either-or situation like you're proposing.  If you're going to use a house in your portfolio then you'd better make damned sure it comprises no more than 20% of your entire portfolio which means don't consider it until you hit $1,000,000 in liquid assets.  

Answer 3

Unfortunately the question presupposes that a house and an investment such as a mutual fund inside a 401(k) always increase and are relative.

Both assumption would not be accurate.

There is no correlation of a 401(k) to a mutual fund or to a home value.

There really is no "average " mutual funds. There are some 10,000+ funds.

Depending on where the house is located can increase or decrease in value given location location location and the current market.

a 401(k) is a structure, as opposed to an investment.

http://en.wikipedia.org/wiki/401(k)

Answer 4

I would rather have ahouse than wither of the two, it's hard to tell, mutual funds suck.

however you need to take into account repairs and such when buying a house.

EDIt- with a 401K, all depends on how good of a company you work for, if for every dollar you put in they put in a dollar, not that bad of a deal.

Answer 5

I know that stocks in general have averaged about 10% growth per year over the last 100 years or so.

I want to say housing prices have risen (again, on average) slightly faster, but I do not know that for sure.

I prefer mutual funds, however, for several reasons:

First, in a 401(k) you're likely getting some sort of employer match - that's free money, do NOT pass that up.

Second is liquidity.  If you need $ from a fund, you just make a phone call, and a check is sent to you the next day (this is true even for retirement accounts, but you'll have to pay taxes and penalties if you withdraw before age 59 1/2).  Unless you have a back-end load fund, you pay no transaction fees to sell your shares.  With a house, you generally have to pay 6% commission, and you have to wait (sometimes months) until you get a buyer.

Third, it could not be easier to build your assets in a mutual fund.  You can have it deducted from your paycheck (in the case of a 401k), or set up an automatic monthly investment from your checking account.  A huge advantage of this is that you are BENEFITTING from market downturns - you are buying more shares with the same amount of money.  With a house, you can add to it by installing a swimming pool, remodeling your kitchen, etc., but these are usually huge investments, and you have to deal with contractors (notoriously unreliable).

Finally, you actually can have the best of both worlds by investing in a real estate mutual fund.  Most large fund companies have them (though this option may not be available in your 401k).  These funds generally diversify their holdings among different types of real estate (shopping malls, office buildings, parking garages, apartment buildings, etc.), and among different regions of the country (U.S.).  These funds have performed well, and they have a low correlation with the overall stock market, making them a great diversification tool.

There's my two cents.  I hope that helps.

Answer 6

Real estat4 and mutual funds are two different asset classes and react differently to different market conditions.  In the short term inflation is bad for stocks and real estate is a hedge against inflation because its a hard asset.  Over the long term a mutual fund invested in stocks may appreciate more than real estate.  But in the short term stocks are more volatile and may rise or fall more than real estate.  They are both part of a balanced portfolio because they are uncorrelated assets.