San Diego Housing Market News and Analysis
2009-2019 real estate versus passive stock fund performance
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Submitted by Coronita on December 20, 2019 - 1:14am
It's close to the end of the year, and I'm doing a reflection of my personal finances. Growing up, I always remember hearing my parents always talk about how the stock market returns were better than real estate returns, how buying rental properties were a PITA, how capital gains from stock market and index funds were much better for them than real estate. And for them, that probably was the case.
But I'm looking at my own portfolio, and I'm not so sure about that.
From one of my passive Vanguard account that for practical purposes was money just parked there with a small percentage of drip investing, the average rate of return from 2009 to 2019 was about 7.1%. The initial balance basically doubled in about 10 years. This was a mixture of large cap,mid cap,small cap, international index funds from vanguard and and some bonds and short term cash.
During this period, I also bought a condo in San Diego for roughly $130k and it sold for about $300k 9 years later, less 10% in commission and fees, or $270k net. So capital gains alone was about $140k during 9 years. In addition, the property generated roughly $60k net rent income during those 9 years. So that initial $130k investment generated an additional $200k, roughly.
Plus, there were many more tax advantages for the rental property. Most of the rental income and capital gains was deferred and reinvested without much of a tax burden. Contrast that with the index fund basket, where any sort of reinvestment would subject the sold amount to capital gains taxes.
I think my parents were wrong. Real estate produced better results, at least for me. That, or I went too conservative for my passive index fund basket mix (damnit, oh well can't do much about it now). One thing though, the index fund basket, was more or less autopilot, no intervention needed. Managing the property, was slightly more hands on. Plus the real estate windfall from the Great Recession is probably that 1 hit, one time lifetime event. I doubt it can be repeated for a long time. So I don't know.
10 years goes by really fast. Life is short.
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