Where do you invest your money, into stocks or real estate? Real estate has certainly been a good performer over the past three years. Who can argue with mortgage rates at a 40-year low and a desire to own something you can “touch and feel?” Furthermore, stocks have been declining in value over the past three years, so why would one consider owning stocks or stock based mutual funds?

Returns in real property and stocks don’t often move in the same direction at the same time. Real estate has been hot for three years, whereas stocks were the darlings during the mid-nineties when real estate was cool. It’s impossible to know which will be the best from year to year. The best strategy is to stay diversified.

According to a recent study, the value of a detached two-storey home in Ottawa increased from $120,000 in September 1981 to $385,000 in September 2002. Over that same period of time, the same amount of money invested in an index tracking the stocks of Canada’s largest companies (TSE/TSX Composite) grew to $394,000. But, just to keep pace with inflation, $120,000 would have had to grow to $308,809 over those twenty-one years.

This small “out performance” by stocks is not enough to choose one over the other. Liquidity is a significant consideration. Mutual funds and stocks are easily sold if you need money on short-notice. Selling real estate can take months to realize the cash and there is the hassle of showing the property, negotiating a price, signing contracts and hiring a lawyer.

It’s true, you can’t live in your mutual fund or stock portfolio, but you’ll never have to call a plumber to fix a broken tap in your mutual funds. Real estate ownership has an element of management and maintenance involved. And let’s not forget about property taxes.

So where do you want to put your money? You must look beyond the recent past to make sound financial decisions. We may be entering the next cycle, which could prove to be very beneficial toward ownership of companies over the next three years. Staying well diversified encourages a balance and promotes peace of mind.

This is a monthly article on financial planning. Call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., of Fundex Investments with your topics of interest at 798-2421 or E-mail at rick@invested-interest.ca.