Stock market jitters? Just remember California real estate crashes!
How does an investor survive rocky stock market conditions like we’ve witnessed at the start of 2018?
Well, fellow Californians, some of the best lessons about riding out market storms may very well come from the state’s quite volatile housing markets.
I tossed into my trusty spreadsheet data on investment returns from stocks, fixed-income options, and California housing to see how the ups and downs compare.
Look, if recent stock market volatility keeps you up at night, history tells you there’s only one guaranteed bet: Treasury bills! They haven’t had a down year in my study dating to 1976. But that serenity comes with a price: 2017’s yield of 1.4 percent was the best year for T-bills since 2008.
As a somewhat sharp comparison, California housing – as measured by the Federal Housing Finance Agency – has been wobbly, rising in value in just 31 out of 41 years. Roughly, 1-in-4 years is a loser.
Sure, California homes have appreciated at an average 7 percent annual rate since 1976. But it’s been a wild ride, if you recall: Results ranged from a 27 percent jump in 1978 to a 23 percent loss in 2009.
Now, depending on how your stomach handles volatility, stocks over the last four decades look nearly as volatile when measured by the total return of the S&P 500-stock index, gains plus dividends.
Stocks have had fewer drops than the state’s housing market, with upswings in 34 of the past 41 years – or roughly a loser in 1-in-6 years. But stocks swings have been wilder: from up 37 percent in 1995 to down 37 percent in 2008.
For all those gyrations, though, investors have been well rewarded: average annual returns of 12.5 percent since 1976.
This is not a pros-and-cons, homes vs. stocks analysis. This is about how longer ownership keeps one sane and creates […]