The contest

Populated as it is by cowboy astronaut warrior microaggressive cisgendered Alpha males, this blog’s comment section bristles with competition. The stock jockeys arrive to belittle to ETFers. The Bitcoin turks and bullion lickers show up to dis fiat money-holders. Everybody piles on the GIC wimps. And, right on cue, the 20x-leveraged property pimps strut and preen with each real estate board report.

But wait. Is any of this healthy? Is investing really a contest?

Of course not. In endless, boring, nauseating posts this site has said people should buy houses if they need one and can afford it without gutting personal finances or putting a family at risk. We’ve also reminded you of the greatest risk – running out of money, not losing it. And this: you can always rent a roof, but never can you lease cash flow. Remember these things. Then find the path that best suits your life, job, obligations and heart.

Having said that, let’s tackle one myth – that buying a house in a hot market always beats investing in a boring B&D financial portfolio. Comparisons are dangerous. After all, you can live in real estate and harness huge debt to own it. But it costs a ton to carry – financing, property taxes, condo fees, maintenance, insurance and large acquisition and selling charges. A portfolio of ETFs usually involves little or no leverage. You can’t inhabit it, either. But the ownership costs are negligible. Both a house and a portfolio can yield tax-free gains.

They’re wildly different things. Only a fool would dare compare. So let’s do it.

The GreaterFool B&D, all ETF-based, hormone-free portfolio of 40% fixed income (safe) stuff and 60% global growth assets has a 10-year track record of 7.1%. (Actually higher because of the last six months, but we’ll stick with the conservative number.)

This means $500,000 invested in 2011, with no income taken, no more cash invested and routine rebalancing, would have grown to be $992,806. If the funds were in RRSPs, RRIFs, TFSAs or other registered accounts, no tax would be payable in this period. So over the decade, total growth equals 98.5%. Embedded fund fees and occasional trading costs would be minimal.

How about a Toronto property? This is now the sexiest real estate market in the country. The Covid rush and mortgage rate collapse resulted in the greatest price gains in Canadian history. Surely it would cream the performance of a basket of exchange-traded funds.

Let’s see. The average 416 property cost $536,128 in 2011. Last month that had climbed to $1,136,280 amid bidding wars, extreme increases in household debt and overt speculation. That’s a 10-year gain of 120%. So real estate wins! Sucks to Garth!

Whoa. A more accurate comparison would reflect that buying that property in 2011 involved paying land transfer tax of $14,400, raising the invested amount to $550,528. Additionally, the increase in equity cannot be realized without turning the asset liquid, which involves a 5% realtor commission. So the realized value after a decade would be $1,079,466, for a 10-year cumulative gain of 96.07%. Ooops. B&D takes it.

Now, remember. Contests like this are odious, misleading and silly. Real estate provides shelter. Financial assets give you money to live on. In an ideal world, you should own both. And let’s not forget current conditions won’t last. Interest rates will augment – reducing bond prices and hiking mortgage rates. Current tax levels will not be maintained – short-term real estate ownership will be penalized and capital gains inclusion rates may increase. Inflation’s a wild card impacting the cost and value of all assets. Meanwhile pensions are eroding for most people and the pandemic has swollen both house prices and job insecurity.

So, it’s not really about who wins the most. It’s more about who best corrals risk. Being leveraged is risky. Believing loan rates will never rise is a risk. Flipping stocks is pure risk. Not investing, failing to use your TFSA or putting your family’s future ahead of your own greed (a house instead of RESPs) brings risk. Taking your investment (or vaccine) advice from some dude on Facebook, MSM media headlines, Re/Max ‘reports’ or a pathetic blog is risky. FOMO brings the ultimate risk, and sadly it’s everywhere these days.

So keep in mind there is no correct path forward. No silver bullets are left in the chamber. There’s no shame in renting. No intrinsic glory in owning. No wisdom in timing markets. And everybody – bar none – needs liquid wealth as the years peel away. So, keep yer pants on.

About the picture: “This is the latest addition to our family, Mabel,” writes Dan. “At just about 5 months old she shows us every day what it’s like to be thankful for the joy of living! This little Beagle sees every moment as a new adventure! We should all learn to live in the moment like she does. Time is the most precious commodity of all!”