Customize Consent Preferences

We use cookies to help you navigate efficiently and perform certain functions. You will find detailed information about all cookies under each consent category below.

The cookies that are categorized as "Necessary" are stored on your browser as they are essential for enabling the basic functionalities of the site. ... 

Always Active

Necessary cookies are required to enable the basic features of this site, such as providing secure log-in or adjusting your consent preferences. These cookies do not store any personally identifiable data.

No cookies to display.

Functional cookies help perform certain functionalities like sharing the content of the website on social media platforms, collecting feedback, and other third-party features.

No cookies to display.

Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics such as the number of visitors, bounce rate, traffic source, etc.

No cookies to display.

Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.

No cookies to display.

Advertisement cookies are used to provide visitors with customized advertisements based on the pages you visited previously and to analyze the effectiveness of the ad campaigns.

No cookies to display.

Loading...
Behavioral FinanceMost Recent Stories

Still Buying the (Golden) American Dream…

This recent Gallup survey on expected future returns of asset prices is pretty interesting.  It shows that most Americans still think that owning a home is the best way to generate a high return in the future:

htptdi0skkstuwzbg1zyyg

 

Look at those figures.  The top two assets are gold and real estate.  This shows how out of touch with reality the average American is.  According to the U.S. Census Bureau Survey of Construction single family real estate generates a 0.74% annual return over the last 30 years (this includes multiple housing booms, mind you, so the data is probably much lower if we go further back in time).  So there appears to be some recency bias here despite the housing bust.

And this doesn’t even account for many of the miscellaneous costs involved in real estate.  As I’ve shown previously, a house is basically a depreciating asset that comes with an appreciating piece of land.  But that depreciating asset is extremely expensive over its lifetime.  When you calculate the total costs that go into maintaining this asset the returns are very likely to be negative over long periods of time.  So that 0.74% figure is probably higher than you should really expect.   In fact, the returns from stocks and bonds trump real estate by a healthy margin so Americans have this one totally backwards – the American Dream isn’t quite the dream we have been sold.

Gold is more interesting.  Gold is a commodity that is widely perceived as a currency.  If you look at the long-term returns of gold in the post-Bretton Woods era the real returns are pretty substantial at 7.8%.  That’s not much below stocks at 8.4%, but substantially higher than T-bonds at 3.2% and higher than the aggregate bond index at 5.4%.   This is interesting when you consider that gold is really just a commodity and commodities don’t tend to generate real returns over the long-term.  I’ve surmised that gold has a “faith put” in its price due to the currency belief.  Whether that can last over the long-term is dubious in my view.  So I wouldn’t be surprised if that view turns out to be wrong as well….

Comments are closed.