Real Estate vs Equities

Property is often touted as a fail-safe investment – something that will increase in value “no matter what”. While this isn’t guaranteed, it’s true that property values across Canada have steadily trended upward for decades1 (sometimes in a big way, such as the case in Toronto or Vancouver2). Some may wonder, then, how real estate compares to equities in terms of long term investment potential. Today, we’ll take a look at how the two opportunities have historically performed here in Canada and what that means for investors.

Investing in real estate

There are several reasons to own property: as a primary residence, a vacation home or an investment property that generates income as a short or long-term rental. Many Canadians have opted to become landlords – 26% of them, in fact, with ⅔ of those owning more than one income property. Canadians are also big fans of cottage ownership, taking advantage of the Laurentians, scenic Muskoka in Ontario and other desirable regions3. On average, the annual gain on a Canadian property was 5.4% (using data from the years 2004 – 2013)4.

Investing in equities

When an investor looks at their portfolio, they will see ups and downs; a natural ebb and flow as the markets change in response to a variety of social, political and economic factors. That said, a well-balanced portfolio will gain in value over time. As one financial writer put it, “short-term pain and long-term investing gains still go together5”. Looking at this with a fairly wide lens, the 2017 Credit Suisse Global Investment Returns Yearbook recorded an average annual real return on stocks at 5.1% using a massive time period of 1900 through to 2016 for data. Bonds were averaged at 1.8%, for comparison, and Treasury bills gained an average of 0.8% per year. If your portfolio was 40% bonds and 60% stocks, then, the expected annual return would be just under 6%. Stocks alone returned around 7% per year, on average. Clearly, equities have outperformed real estate when compared in general terms.

The bottom line

Challenges such as the 2008 recession may feed into the perception that equities are not a solid long-term investment – however, the numbers clearly show that this is not the case. While owning property can be valuable as an investment, they come with maintenance costs and from a purely numeric standpoint, equities remain the better performing long term strategy. Depending on an investor’s unique situation, it may be wise to own one or more properties or none at all, but equities should always play a role in one’s wealth management plan. For personalized wealth management services, please contact our team – we’d be pleased to offer guidance.


1 https://www.cbc.ca/news/business/april-house-prices-1.4663359
2 https://www.cbc.ca/news/canada/british-columbia/housing-costs-vancouver-toronto-angus-reid-poll-1.4798828
3 https://www.theglobeandmail.com/globe-investor/personal-finance/nothing-beats-the-cottage-lifestyle/article1372017/
4 https://www.theglobeandmail.com/real-estate/mortgages-and-rates/renters-make-for-wealthier-investors/article17834799/
5 https://www.theglobeandmail.com/globe-investor/investment-ideas/balanced-is-best-never-doubt-long-term-portfolio-gains/article21153453/

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