Real Estate or Mutual Funds? Which is the Better Investment?

In the midst of today’s wild Toronto real estate market, one cannot help but wonder whether it would have been better investing in real estate rather than in mutual funds.

Reports suggest that prices are up 33% from same time the previous year. Needless to say, people are cashing in – especially those who invested in real estate in the long term. This boosts the impression that it is better to invest in real estate rather than mutual funds. This may be true in the short term – and its a speculator’s paradise. But recent measures have been implemented to discourage such practices.

Based on historical numbers however, financial advisors often insist on you investing in mutual funds rather than in real estate. Is this true, or are these just attempts for you to sign up for their services rather than a realtors’?

Based on my own personal experience, I find mutual funds investing a better option than real estate. Quite simply, here’s why: we invested more time and money in real estate for 23 years but had less returns compared to our investment in mutual funds.

We purchased our first home in 1994 and invested in mutual funds for our retirement funds, 5 years after. Currently, the worth of our home is $1.088 million and our retirement funds currently sits at $1.090 million – a little bit more than our real estate assets. The money we put into both was approximately the same month after month. But based on the fact that our we only started our retirement investment 5 years later than our first house purchase, it is clear that mutual fund investing had better returns for us in the long term.

Consider too – the cost that went to interest on mortgage financing that we had to pay until the house was fully paid off in 2014. We never incurred such costs for our retirement investments. Also, had our real estate investments been a secondary property, half of our gains would have been subject to capital gains tax – whereas our growth on our retirement investments are tax-free.

So, for those who thinks they are missing out on investment opportunities in today’s crazy real estate market, don’t fret. Consider investing in mutual funds instead.