Investment Risk Study Surprise

A new study by the National Bureau of Economic Research (NBER) analyzes investment risk, trends, and behaviors, finding that real estate may be a better, safer investment than stocks.

The findings alter previous commonly held beliefs about the value and risk associated with both housing and equities investments. NBER study authors Òscar Jordà, Moritz Schularick and Alan M. Taylor created a database of economic data from 1870 to today for the U.S. and 15 other advanced economies, and find that returns on investment in housing are roughly the same as equity returns. As well, that equities are much riskier for investment than is housing, Bloomberg reports.

To revisit our previous understanding, it has been widely accepted that equities yield real returns much higher than those of government securities. By most estimates that gap is about 6.5 percentage points; while government bonds might offer an average return of about 1 percent a year, for example, equities return about 7.5 percent a year (the precise figures depend on the data sample). Equities, however, are much riskier, and so there is a trade-off between risk and return. So far, so good.

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