25% of US consumers prefer to invest in real estate; Millennials put their faith in cash.

According to the Financial Security Index (Financial Stability Indicator) published by Bankrate, 25% of US consumers say their no.1 investment is real estate. Next is cash (savings and deposit certificates), preferred by 23%. Then comes gold and precious metals (16%), followed by stocks (16%). Only 5% of respondents said bonds.

While investment strategists weigh up the relative merits of holding investments in bonds or equities, it is clear that consumers have other ideas. Asset diversification is not something that millennials are overly concerned about. However, wealthy or highly educated investors with assets in excess of 100 million yen favor stocks and real estate, both of which have been in a bull market since the Lehman crisis in 2009.

Although Fed rate hikes, Brexit and another events have caused hiccups along the way, this is now the second longest bull market in US history. Notwithstanding this, the fallout from Lehman remains indelibly etched in consumers’ minds. Now, with uncertainty overhanging the market once more, there has been a shift in consumers’ perspective on what constitutes a safe and risk-free asset.

Source: Pixabay

The Financial Security Index survey is carried out monthly and asks 1000 US consumer respondents this: “Which would be the best way to invest money you wouldn’t need for more than 10 years?” and tracks their answers. Looking at data from previous surveys, in July 2013 for example, cash was highlighted as most preferred investment (26%), followed by real estate at 23%. Only 14% of respondents preferred stocks and 8% said bonds.

From the same survey, HNWI’s (High net worth individuals) with assets in excess of US$1mil were more likely to prefer investing in real estate and stocks than in cash. The survey also showed that the more educated you are (for example, with a college education), the more likely you are to be active in stocks. It also revealed that women preferred holding cash.

Many consumers view cash as a low-risk safe-haven asset but in a low interest rate environment, the scope for actually increasing the value of your capital is limited. Moreover, there is always the risk that the currency in which you hold your cash depreciates in value. This only goes to emphasize the importance of diversifying your assets. Now, there is a steady increase in the number of Americans who prefer real estate as an investment because it is a tangible product and holds its value over the longer term.

 

You can’t go broke investing in real estate

Source: Pixabay

Stocks can be a highly risky way of investing your cash. With stocks, there is always the risk of a crash, while with real estate, you can physically see and feel the product. Even though property price bubbles can burst, US consumers seem to value the sense of security they get from a tangible asset where there is very limited risk that it may lose 100% of its value.

There is view that the US is seeing another real estate bubble, as property prices in urban centers start to rise again. So it is hardly surprising that real estate is once again gaining popularity as an investment.

If you own a property, you can use it as a place to live, or you can use it as a source of income by renting it out to a third party. Property is relatively liquid, but one of its disadvantages is the time it takes to convert it to cash when you sell. Moreover, you cannot manage a property investment online, as you can a stock portfolio. You need to spend time on it, as well as money in terms of maintenance costs.

The millennial generation (18 to 35 years old) has limited spare capital to invest right now. And this is the generation which is most likely to favour cash, preferring it to other ways of investing. 32% of those between the ages of 18-35 endorse cash, as do 43% of millennials aged 18-25.

Avani Ramnani, CFP and director of financial planning and wealth management at Francis Financial, suggests it is a dangerous situation when so many people think of cash as a secure investment given the way its value can quickly be eroded by inflation.

It is therefore essential that consumers should be properly educated when it comes to managing their assets.  This is the only way in which they will fully appreciate the risks of investment as well as the opportunities.

This article first appeared on zuu.co.jp.

(By ZUU Japan)

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