I’ve never been one to accept investment advice at face value. For years, I’ve found myself questioning the conventional wisdom around real estate and stock market returns. Let me tell you something that might surprise you – the numbers aren’t telling the story most people think they are.

After spending countless evenings analyzing spreadsheets, I’ve discovered the S&P 500 has delivered an average annual return of 10.39% from 1992 to 2024. Meanwhile, the U.S. housing market crawled along at just 5.5%. Almost double the return for stocks! That’s not what your real estate agent friend keeps posting about on social media, is it?

But hold on. I’m not here to declare stocks the automatic winner. The comparison isn’t nearly that simple, and I wouldn’t be doing either investment justice by suggesting it is.

While stocks win the raw numbers game, they’ll take you on a wild emotional rollercoaster that real estate typically won’t. Remember the first half of 2020? The S&P 500 absolutely plummeted – dropping a terrifying 33%. Housing prices? They dipped just 3.4%. Such is market volatility. And it matters.

I know some of you might think I’m ignoring those eye-popping real estate returns in hot markets. I’m not. Dubai’s prime properties delivered stunning 20-22% returns in 2023. Impressive, certainly. But even that fell short of the S&P 500’s 26.29% that same year.

For those of you seeking some middle ground (I see you, fellow risk-balancers), REITs present an interesting option. They’ve actually returned 11.8% annually from 1972 to 2019, edging out the broader stock market’s 10.6% during that time.

The real estate versus stocks debate has far more nuance than most people realize. Beyond the percentages lie factors that could dramatically alter which choice makes sense for your specific situation. Let’s explore what’s actually behind these numbers and figure out which path might be right for your money.

Numbers Don’t Lie, But They Don’t Tell the Full Story

“The S&P 500 has delivered an average annual return of 10.39% (including dividends), or 7.99% when adjusted for inflation, between 1992 and 2024, according to Investopedia. Over the same period, the US housing market provided a 5.5% rate of return.” — Sarwa Editorial Team, Financial investment platform providing market analysis

Looking at raw performance figures makes stocks seem like the obvious winner in the investment world. The S&P 500 has delivered an average annual return of 10.39% (including dividends) from 1992 to 2024 [1]. Meanwhile, the U.S. housing market limped along at about 5.5% annually during that same timeframe [1]. I’ll admit, a nearly 5% performance gap initially had me convinced that stocks were the clear champion. But I’ve learned that initial impressions in investing often deserve a second look.

The Long View: 10.3% vs 5.5%

I’ve spent far too many late nights examining historical data (my husband thinks I’m slightly obsessed), and the pattern holds remarkably consistent across different time periods. From 1928 to 2023, stocks delivered approximately 9.8% annually, while real estate trailed with more modest gains of 4.2% [1]. Even when the timeframe shifts, the stock market maintains its lead – between 1978 and 2024, the S&P 500 generated 12.25% annual returns compared to residential real estate’s 10.6% [2].

But here’s something I’ve learned after years of analyzing investments – these figures don’t tell the complete story. Not even close.

What Inflation Really Does to Your Money

I’m always shocked when people discuss investment returns without mentioning inflation. It’s like celebrating a raise without realizing your taxes went up by the same amount.

After accounting for inflation, the performance gap narrows but remains significant. The S&P 500 delivered an inflation-adjusted return of 7.66% between 1992 and 2024 [1]. Looking even further back – over a 150-year period ending in 2025 – stocks returned 2.6% annually after inflation, excluding dividends [15]. U.S. homes, by comparison, returned a measly 0.6% per year in real terms over a 133-year period [15]. That’s more than 4 times less than stocks.

The Hidden Power of Cash Flow

Dividend reinvestment creates a wealth-building engine that too many investors overlook. From 1960 to 2023, reinvested dividends accounted for 85% of the S&P 500’s cumulative returns [16]. That’s not a typo – 85%. The price appreciation that gets all the media attention is actually the smaller part of the total return story.

Similarly, rental properties generate ongoing income that smart investors put back to work. For residential real estate, total returns including rental income have historically reached approximately 10.6% [2], making them far more competitive with stock returns than simple home price appreciation would suggest.

Time Is Your True Wealth Multiplier

I feel like I need to emphasize this point more than any other – compounding works differently yet equally effectively in both investment types.

With stocks, compounding happens almost invisibly as dividends and investment gains are reinvested to purchase additional shares, creating that magical snowball effect we all hear about [1]. The S&P Dividend Aristocrats showcase this power, generating robust total returns of 8.99% annually in the decade ending December 2024.

Real estate compounding fascinates me even more because it’s so tangible. First, your growing equity can be leveraged to acquire additional properties. Second, rental income can be reinvested to pay off mortgages faster or purchase more properties, creating multiple income streams simultaneously.

I’m particularly struck by how leverage amplifies this effect – most people purchase real estate with only 20% down, potentially supercharging returns in rising markets. (Now, I have my own personal feelings on leverage, but I’m trying my best to set them aside to explore the numbers.)

Both investment approaches reward patience above all else. The longer your time horizon, the more dramatically compounding transforms modest sums into significant wealth. This is a principle I wish I’d understood in my twenties rather than learning it the hard way later on.

The Emotional Rollercoaster: Volatility and Risk

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Let’s talk about something that keeps me up at night when investing – volatility. I don’t care how impressive those potential returns look on paper if I’m going to have a heart attack watching my portfolio value plunge by double digits in a single day.

The 2020 Revelation: 33% vs 3.4%

If you want to understand the real difference between stocks and real estate, look no further than the first half of 2020. I remember staring at my computer screen in absolute horror as the S&P 500 nosedived approximately 33% between January and June [1]. Meanwhile, my friends with rental properties? They barely flinched as median home prices dipped just 3.4%, from $329,000 to $317,700 [1].

(Of course, they had a totally different kind of trouble coming their way, but like I said, I’m trying to keep my opinions of leveraging and the downsides of leveraging out of this article.)

This wasn’t just a fluke. Real estate naturally resists the daily panic that stocks endure. Think about it – you can dump all your stock holdings with a few clicks when fear takes over, but selling a house takes weeks or months [5]. This forced patience actually protects property owners from their worst impulses. I almost wish my stock broker would make me wait two months before executing trades during market crashes – I’ll let you know if 57I sell as it will all but guarantee the bottom of the crash.

Tale of Two Crashes: Different Beasts Entirely

Now, I’m not trying to paint real estate as some risk-free wonderland. Both markets can absolutely devastate investors when things go south. The 2008 housing collapse remains a painful memory – average U.S. homes lost one-third of their value [6], triggering the Great Recession through a toxic mix of subprime mortgages, housing oversupply, and those bizarre financial derivatives nobody really understood [7].

The stock market has its own horror stories. Remember the dotcom bubble? The NASDAQ plunged a staggering 78% between March 2000 and October 2002 [6]. The difference? The dotcom crash stayed mostly contained within the stock market, while the housing crisis threatened to take down our entire financial system [7].

What makes today’s real estate market different from 2008? Supply. We simply don’t have the massive housing inventory glut that preceded the last crash [8]. The Federal Reserve Bank of St. Louis data confirms what anyone house-hunting already knows – we’re dealing with undersupply, not oversupply like 2005-2008 [8].

Our Worst Enemy: Ourselves

I, as a stock investor, try my best to avoid panic-selling during market downturns. But I’ve done it, I’m not proud of it, and I can sell at the exact bottom with amazing precision.

Data shows I’m far from alone – countless investors liquidate at market lows rather than weathering temporary storms. Those who sold during the COVID crash missed “one of the fastest market recoveries in history” [10].

Real estate’s inherent “stickiness” actually protects investors from themselves. You can’t impulsively sell a house at 2 AM because you saw a scary headline. Plus, there’s something psychologically reassuring about owning physical property during uncertain times – you can see it, touch it, visit it.

This behavioral factor matters more than most people realize when comparing investment returns. Stocks might win on paper, but actual investor performance often falls significantly short due to emotional decisions and terrible timing. We, as humans, aren’t wired for watching our net worth fluctuate wildly day to day.

The Hidden Wealth Builders: Leverage and Tax Magic

“Real estate provides tax benefits, tangible asset value, and serves as a stable, less volatile investment, often acting as a hedge against inflation.” — The Luxury Playbook Editorial Team, Business and Economy magazine focused on investment strategies

Real estate offers extraordinary financial advantages beyond simple appreciation. While stocks might win the raw returns game at first glance, real estate comes with powerful tools that can dramatically tilt the playing field.

The Power of Other People’s Money

The incredible leverage advantage: think about this, when you buy property, you typically put down just 20% and control an asset worth five times your investment [12]. It’s mind-boggling when you do the math. With $25,000, you can purchase $125,000 of property [12]. That same $25,000 buys you… well, exactly $25,000 in stocks without leverage.

Sure, margin trading exists in the stock world, but it’s not remotely the same. Stock margin comes with higher risks, stricter regulations, and none of the stability of property-backed leverage [13]. Real estate leverage offers something uniquely powerful – the security of a tangible asset you can actually touch. You can’t live in your stock portfolio when times get tough.

The Tax Code’s Love Affair with Real Estate

The 1031 exchange might be the best-kept secret in the investment world. I’ve watched friends use this provision to build small real estate empires while deferring taxes for decades. This remarkable IRS rule lets property investors roll profits into new properties without paying capital gains taxes [15]. It’s like getting an interest-free loan from the government [16] while building wealth through increasingly valuable properties [1].

Meanwhile, stock investors face capital gains taxes with every profitable sale [17]. At current rates – 20% federal capital gains tax for high earners – that’s a significant drag on compounding returns. I’m constantly amazed at how many investors fixate on gross returns while ignoring this crucial difference.

The Depreciation Game-Changer

We, as real estate investors, have another advantage that stock market players can only dream about – depreciation deductions. The IRS lets us deduct a portion of property value annually over 27.5 years for residential buildings or 39 years for commercial ones [18]. This creates a fascinating scenario where you might have positive cash flow while showing paper losses for tax purposes [19].

I know several property owners who pay almost nothing in taxes despite collecting substantial rental income. When you add mortgage interest deductions to the mix [20], you’ve created multiple layers of tax shields that dramatically enhance your real returns [18]. Such is the power of real estate’s unique position in the tax code.

The stock market cheerleaders won’t tell you this part of the story. But these advantages can potentially make real estate competitive with – or even superior to – stock investments for building long-term wealth, especially for those willing to learn the intricacies of the system.

The Real Cost of Ownership

Of course, in real estate, there can be hidden costs that silently eat away at your returns. After years of comparing statements and property ledgers, I’ve discovered these expenses create a stunning gap between theoretical and actual performance. This gap matters more than most people realize.

The Property Money Pit

Real estate ownership is not just about collecting rent checks and watching property values climb. There’s a constant stream of expenses that property gurus often downplay or completely ignore.

You’ll face annual property taxes (typically 1-2% of property value), maintenance costs (around 1% yearly), insurance premiums, times of vacancy, and possibly property management fees ranging from 8-12% of rental income [1]. If you’re unlucky enough to have an HOA, that’s another monthly bill – though at least those fees are deductible against rental income [21].

I remember when my friend bought her first rental property. She was shocked when nearly 40% of her rental income vanished to these ongoing expenses. The glossy brochure from the investment seminar hadn’t emphasized that part. Such is real estate.

Fee Comparison: Pennies vs Thousands

The cost gap between managing stocks and real estate is something I find absolutely staggering. Modern index funds charge annual fees between 0.03% and 0.15% [1]. That’s practically nothing – mere pennies on the dollar.

But selling real estate? Hold onto your wallet. You’ll typically pay realtor commissions of 6-10% of the sale price [23]. Think about that for a moment. On a $300,000 home sale, you might hand over $30,000 just in commissions. That’s not a typo – thirty thousand dollars gone.

The Waiting Game

The illiquidity of real estate creates a strange paradox that few people understand. Property sales can take weeks, months, or occasionally years to complete [23], locking up your capital and sometimes forcing you to sell when market conditions aren’t ideal.

Meanwhile, stocks can be liquidated faster than I can finish typing this sentence. Almost instantly, with minimal price impact.

But here’s the interesting part – this illiquidity isn’t entirely negative. Patient real estate investors historically earn what economists call a “premium” – up to 5% higher returns over 10-25 year periods compared to public equities [24]. Essentially, the market pays you extra for accepting reduced flexibility and longer commitment periods.

I know many investors who dislike real estate’s illiquidity, but I’ve come to see it as a feature, not a bug. The inability to panic-sell during market dips has saved countless real estate investors from their worst impulses. And illiquid investments provide meaningful portfolio diversification, responding more slowly to market shifts than publicly traded assets [24].

REITs: Finding Middle Ground in the Investment World

Let’s talk about REITs – Real Estate Investment Trusts. They’re this fascinating middle ground that gives you a taste of both worlds – real estate’s stability with stock market convenience. And honestly, they deserve more consideration than most investors give them.

Let me be clear – I’m not claiming REITs are the perfect investment. Nothing is. But they offer a unique compromise that solves problems on both sides of the investment spectrum.

The Return Numbers That Made Me Look Twice

Here’s something that surprised even me when I first saw the data. Between 1972 and 2019, REITs actually outperformed the broader stock market. The FTSE NAREIT All Equity REITs Index delivered average annual returns of 11.8%, beating the S&P 500’s 10.6% during the same period [26]. That’s not just a small edge – it’s meaningful outperformance over decades.

What’s more interesting is that this wasn’t just a lucky timeframe. REITs have beaten the S&P 500 over 20, 25, 30, 40, and even 52-year periods [3]. Such is investing – the longer timeframe often tells a different story than recent performance. I should note that the S&P 500 has pulled ahead in more recent intervals (1, 5, and 10-year periods) [3], but the long-term track record remains impressive.

Why I Appreciate Their Practical Benefits

I’ve always valued flexibility with my investments. The thought of having money locked up in a property that might take months to sell can make people uncomfortable. REITs solve this problem beautifully – they trade on major exchanges with shares bought and sold daily. Need to adjust your position? No problem. No real estate agents, no closing costs, no waiting.

But the benefit I find most compelling is their diversification effect. REITs don’t move in perfect sync with other investments – they have just a 0.56 correlation with the S&P 500 and merely 0.24 with fixed-income securities [26]. In plain English, that means they zig when other investments zag, helping smooth out your portfolio’s ups and downs.

The Tax Situation (It’s Complicated)

Now, I wouldn’t be giving you the full picture if I didn’t mention the tax situation. REITs must distribute at least 90% of their taxable income as dividends [27], which is great for income seekers but creates tax complexities. Most REIT dividends are taxed as ordinary income rather than qualified dividends [28], which isn’t ideal.

I’ve found that many savvy investors simply hold their REITs in tax-advantaged accounts like IRAs, where dividend taxation becomes irrelevant [31]. That’s one way to get around the tax disadvantage while keeping the benefits.

The Numbers Game: Real Estate vs Stock Market Returns

I know what you’re thinking – “just show me the numbers already!” Fair enough. I’ve pulled together this comparison table that strips away the fluff and gives you a side-by-side look at what we’re really dealing with. But I have to warn you – looking at this table without understanding the context behind these numbers is like trying to judge a restaurant by its menu prices without tasting the food.

Comparison Factor	Stock Market (S&P 500)	Real Estate	REITs
Average Annual Return (1992-2024)	10.39%	5.5%	11.8% (1972-2019)
Inflation-Adjusted Return (1992-2024)	7.66%	0.6% (133-year period)	Not mentioned
Volatility Example (2020)	-33% decline	-3.4% decline	Not mentioned
Leverage Options	Margin trading (higher risk)	20% down payment typical	Not mentioned
Transaction Costs	0.03-0.15% (index funds)	6-10% (realtor commissions)	Stock market trading fees
Tax Advantages	Standard capital gains tax	– 1031 exchange option – Depreciation deductions – Interest deductions	20% deduction on qualified dividends
Ongoing Costs	Minimal management fees	– Property tax (1-2%) – Maintenance (1%) – Insurance – Times of Vacancy – Property management (8-12%)	Management fees
Liquidity	Immediate	Weeks to months	Immediate
Income Generation	Dividends	Rental income	90% of taxable income as dividends
Market Correlation	High	Lower correlation to markets	0.56 correlation with S&P 500

What jumps out at me here isn’t just the return differences (though they’re significant). It’s the trade-offs in each column. That immediate liquidity with stocks? It’s what enables panic selling during downturns. Those tax advantages with real estate? They require significantly more work and expertise than most new investors realize.

I’m constantly surprised by how many people look at a table like this and fixate on just the first row. That’s not how investment decisions should work. We’re not looking at simple math problems – we’re looking at complex life choices that interact with our goals, our temperament, and our unique situations.

My Take: Which Actually Wins – Stocks or Real Estate?

After spending weeks comparing these investment vehicles, I’ve come to a conclusion that will probably frustrate you: there is no universal winner in the real estate versus stock market debate.

I know that’s not the clear-cut answer most people want. We crave certainty – just tell me where to put my money! But forcing these investment options into a simplistic “winner-loser” framework does neither justice. The data reveals a far more nuanced reality.

Stocks have historically delivered that impressive 10.39% annual return compared to real estate’s more modest 5.5%. On paper, that makes stocks the obvious choice. But we, as thoughtful investors, should look beyond these surface-level numbers.

Real estate offers something stocks simply cannot – leverage that doesn’t keep you up at night, powerful tax advantages through 1031 exchanges, and remarkable stability during market chaos. Remember the 2020 crash I mentioned earlier? That 33% stock plunge versus real estate’s mere 3.4% dip tells a compelling story about volatility that raw return numbers hide.

Meanwhile, stocks provide unmatched liquidity and minimal management headaches. I own both types of investments, and let me tell you – there’s something wonderfully simple about never receiving midnight calls about broken water heaters or having to deal with property tax assessments.

REITs deserve special mention here. With their impressive 11.8% historical returns (actually beating the broader market’s 10.6% over the same period) and daily liquidity, they create an intriguing middle path that combines elements from both worlds.

I wrestled with whether I should just tell you which investment I personally prefer. But that would be doing you a disservice. Your ideal portfolio balance depends on factors uniquely yours – your time horizon, risk tolerance, desire for passive versus active management, and even your personality.

We need to move beyond the “versus” mentality altogether. There is nothing to say that you can’t own both as part of a diversified portfolio. The most successful investors I know don’t view these options as competitors but as complementary tools working together. They understand that diversification across uncorrelated assets creates resilience through different market cycles.

So instead of asking which performs better, perhaps the better question is: which combination of these investments will help you sleep at night while still reaching your financial goals? That’s the question worth answering.

References

[1] – https://www.investopedia.com/ask/answers/052015/which-has-performed-better-historically-stock-market-or-real-estate.asp
[2] – https://awealthofcommonsense.com/2024/01/what-is-the-historical-rate-of-return-on-housing/
[3] – https://theluxuryplaybook.com/real-estate-vs-stock-investing-historical-performance/
[4] – https://www.suredividend.com/dividends-real-estate/
[5] – https://www.financialsamurai.com/why-rental-property-income-is-superior-to-stock-dividends/
[6] – https://www.gatsbyinvestment.com/education-center/why-real-estate-is-less-volatile-than-the-stock-market
[7] – https://www.investopedia.com/articles/personal-finance/062315/five-largest-asset-bubbles-history.asp
[8] – https://www.quora.com/Was-the-dot-com-bubble-worse-than-the-2008-crisis
[9] – https://www.newsweek.com/housing-market-analysis-2008-crash-differences-philipp-carlsson-szlezak-paul-swartz-1732317
[10] – https://www.forbes.com/sites/truetamplin/2025/03/21/how-panic-selling-damages-your-portfolio-and-what-to-do-instead/
[11] – https://sparkrental.com/is-stock-or-real-estate-faster-in-building-wealth/
[12] – https://pmc.ncbi.nlm.nih.gov/articles/PMC11428550/
[13] – https://www.investopedia.com/investing/reasons-invest-real-estate-vs-stock-market/
[14] – https://www.nerdwallet.com/article/investing/real-estate-vs-stocks-which-is-the-better-investment
[15] – https://www.irs.gov/pub/irs-news/fs-08-18.pdf
[16] – https://www.investopedia.com/financial-edge/0110/10-things-to-know-about-1031-exchanges.aspx
[17] – https://www.derosagroup.com/post/stocks-vs-real-estate-why-real-estate-is-the-smarter-investment
[18] – https://apiexchange.com/defer-capital-gains-taxes-with-1031-exchange/
[19] – https://www.therealestatecpa.com/blog/how-real-estate-investors-can-boost-first-year-depreciation/
[20] – https://www.investopedia.com/articles/investing/060815/how-rental-property-depreciation-works.asp
[21] – https://www.apexidaho.com/the-power-of-leverage-in-real-estate-investing
[22] – https://www.mynd.co/knowledge-center/tax-deductions-real-estate-investors
[23] – https://www.hsh.com/first-time-homebuyer/is-6-percent-commission-fair.html
[24] – https://smartasset.com/insights/real-estate-vs-stocks
[25] – https://trionproperties.com/news-and-articles/understanding-the-illiquidity-premium-in-real-estate/
[26] – https://www.morningstar.com/funds/time-second-look-reits
[27] – https://www.fool.com/research/reits-vs-stocks/
[28] – https://www.reit.com/investing/investment-benefits-reits/reits-and-liquidity
[29] – https://globalrealestate.georgetown.edu/insight/the-role-of-reits-in-diversifying-your-investment-portfolio/
[30] – https://www.investopedia.com/terms/r/reit.asp
[31] – https://www.investopedia.com/articles/pf/08/reit-tax.asp
[32] – https://www.reit.com/news/blog/market-commentary/tax-treatment-reit-common-share-dividends-paid-2023
[33] – https://www.nuveen.com/gcreit/tax-benefits-and-implications-for-reit-investors
[34] – https://turbotax.intuit.com/tax-tips/investments-and-taxes/tax-tips-for-real-estate-investment-trusts/L0tW3ad6C