Break Of Day Capital

Break of Day Capital - Real Estate Investing Made Easy - Multifamily Investing - Passive Income

The never-ending argument: Real Estate vs. Stocks, which one wins over the long-term?

For what seems like eons, individual investors and fund managers have defended their preferred asset classes. Amidst rising interest rates, red-hot inflation data, and microeconomic data reflecting a large shift in consumer behavior, a large population of investors are left with the hard question of what asset class is best for their long-term goals and can weather the economic storm ahead. 

While in a growing economy, naturally all assets perform well, in a downturn, mitigating risk is a key factor when deciding where to allocate capital for new investments. In a risk mitigation strategy during waves of economic uncertainty, you would find it quite difficult to find a better alternative than multifamily investing. The sharpe ratio is a great way of judging whether an investment is worth the amount of risk to capital that is being invested. It allows funds and investors to calculate the return of a portfolio or investment per unit of risk. As denoted in the figure, private equity real estate outperforms stocks on a risk-adjusted basis. Global P.E. Real Estate on a 5 year basis generated a sharpe ratio of 1.45, in comparison to the Vanguard Index and U.S. stocks at sharpe ratios of 0.44 and 0.33; meaning p.e. real estate produced a 1.45% return for every 1% of risk. Real estate is one of the “safe-haven” asset classes that investors tend to flock to during periods of inflation and economic recession. The figure shown is a great indication of the volatility that traditional assets bring, as opposed to the stability and predictability of the real estate asset class. Multifamily in particular is a great buffer; housing is a core part of living, rents align with the rise of inflation, asset values appreciate over time, and there are extraordinary tax benefits in comparison to marketable securities.

Global Private Equity Real Estate outperforms stocks on a risk-adjusted basis
Global Private Equity Real Estate outperforms stocks on a risk-adjusted basis

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