If you invest in the stock market, which includes an assortment of stocks, bonds, mutual funds and options, you are in for a rocky ride. In reCentral Alberta years, many people made money on technology funds. But the technology bubble burst in the spring of 2000. Many of those people lost a great deal of money. Now in 2004, the stocks are rising, then falling, then falling, the experts say that the stocks will rise if the interest rates can be stabilized, if the dollar can be stabilized, if , if , if . . .
In fact, many financial advisors suggest that if investors cannot stomach the rapid rises and falls of a stock, they might want to consider investing elsewhere. Stocks are not for the faint at heart. It takes a great deal of stamina to survive the roller-coaster ups and downs of an investment that is heavily dependent upon economics.
What about real estate? Has it done better than the stock market? Take a look at the example of Bill and Marsha. Each received a $10,000 inheritance. They were not sure where to invest their proceeds. The following examples are set in the time frame of approximately 1990 – 2002. The lessons learned from the two examples can be applied to most any time in history.
- Bill’s investment choice.
Conservative Bill invests his $10,000 in the stock market. He puts it into a S&P 500 index fund.
- Martha’s investment choice
A renter, and inexperienced in the stock market, Marsha uses her $10,000 as a down payment on an $80,000 condominium. Fast forward – 12 years. Who did better on their investment?
- Bill’s return
Since 1990, the S&P 500 more than tripled. From their initial investment of $10,000, Bill’s gain was roughly $30,000, pre-tax.
- Marsha’s Return – reaping the benefits of home ownership
What about Marsha? During the same period, home values increased roughly 4 percent per year nationally. At that rate, Marsha’s $80,000 condominium grew to a worth about $126,000. If she sold it, her profit would be about $46,000, tax-free.
On average, most Canadians invest and earn more in their homes than they invest and earn from their savings accounts, stocks, bonds and other investments. Gordon Pape, recognized Canadian author and financial advisor suggests that home equity remains a cornerstone of most families wealth.
Real estate is a solid, familiar investment
In addition, there are several other solid reasons for investing in real estate:
Forced savings. Contributing towards a mortgage automatically forces a family to save. Rather than paying rent, these monthly payments contribute to future security.
Appreciation. By nature of the supply and demand, home prices rise. According to the Edmonton Real Estate Board, a home purchased in January 1997 for $123,530 sold for $167,000 in 2004.
Tax-free profits. When your home is your principal residence, and you sell it, you will not pay tax on any of the profits. This is one of the last and greatest advantages for building wealth left in Canada.
Equity build-up. Your home will naturally rise in price, according to the market. In addition, you will be contributing to the reduction of your mortgage. The difference between what is outstanding on your mortgage and what your home is valued at, is your earned equity. Your equity is a valuable commodity which can be used to obtain additional financing, obtain a second mortgage, or move-up to a larger home.
Your Real Estate Professional — helping you secure your future
Your Real Estate Professional has helped many individuals benefit from real estate. Real estate has long been recognized as an inflation-resistant investment, providing homeowners with a tangible incentive to save. Buying your own home, or investing in one, is widely accepted as one of the soundest financial commitments you can make.
Regardless of the size of your real estate investment, you can make a return and build up to your retirement. Your Realtor can help you pick an investment that you are the most comfortable with.