What is a better long term investment – stocks and bonds or real estate?

Given Canada’s soaring housing market, it is easy to believe that real estate is the best investment. History suggests otherwise.

Imagine investing $1,000 on Jan. 1, 1975, in Canadian real estate (a mix of commercial and residential properties) and then watching it grow over time. By Dec. 31, 2021, that $1,000 would have grown to $76,515. Next, do the same with a conventional portfolio consisting of 30-per-cent Canadian stocks, 30-per-cent U.S. stocks, 30-per-cent international stocks and 10-per-cent Canada bonds. By the end of 2021, the conventional portfolio would be worth $169,337, which is more than double the real estate portfolio. I must caution that such comparisons are very sensitive to both the starting point and the end point of the observation period. If we had started the projection two years earlier – on Jan. 1, 1973 – the two portfolios would be in a virtual dead heat by the end of 2021.

(Source for real estate (since 2000): MSCI/REALPAC Canada Quarterly Property Index (Unfrozen) measuring unlevered total returns of directly held property investments. For stocks: TSX for Canadian stocks, Standard & Poor’s for U.S. stocks, and MSCI World Index (ex-U.S.) for international stocks; Bond returns are based on Canada long bonds as tabled in Canadian Institute of Actuaries Economic Statistics; Chart was created by the author)