My good friend Ryan is lucky. His parents bought him a one-bedroom apartment in Boston’s once-gritty South End last year. He promptly quit his job and rented out his condo through Air BnB to support a year of travel. This made him think real estate is a great investment. Though Ryan and I are both 27, I see it differently.

My parents have a close friend whose net worth is mostly tied up in a Connecticut home she bought in the 1980s. The house’s value has declined substantially, and she’s finding it hard to sell. Her story, and my five years of experience working in the financial-services industry, has taught me to invest as much and as early as I can, mostly in stocks.

More Americans agree with Ryan than with me, it seems. Asked in a recent survey what they thought was the best way to invest money not needed for more than 10 years, 28% said real estate. Another 23% said cash (savings accounts and CDs). Only 17% said stocks, slightly more than said gold. Just 4% chose bonds, fewer than those who opted for “other.”

Other surveys have found that Millennials—people in the 20s and early 30s, such as Ryan and me—are particularly prone to favor real estate and cash over stocks and bonds. To find out why, I did an informal survey of about 10 of my friends. A majority of them said that given the choice between investing in the stock market and buying a home, they would buy a home. Their reason: The home would be an investment that would (hopefully) appreciate over the long term, and they could either live in it or rent it out to generate income.

I can see their point, but I think they are overestimating housing returns. While the housing market has done well in recent years, stocks have done even better. From the beginning of 2010 through the middle of 2017, the Case-Shiller National Home Price Index rose 3.7% a year; the S&P 500 Index of US large-cap stocks returned 13.3% a year, more than three times as much, as you see from the bars on the left side of the Display. The return on cash was barely positive.

Some of my friends also said they were scared by the last financial crisis. But from 2007 through 2009, the S&P 500 fell 5.6%, annualized, and the home price index fell 7.1%, as the bars in the middle of the Display show. Cash, the “safe” asset class, returned 2% in that period.

Of course, there have been some periods when residential real estate has outperformed the stock market, most notably, during big stock-market drops. In the very worst phase of the last one—the six months from September 2008 through February 2009—the S&P 500 fell by 41.8%, while the home price index fell “only” 10.1%, though very few homes were sold at that time.

Over longer time periods, stocks have generally outperformed homes. From 1975 through 2017, the S&P 500 returned 12.0% annualized, versus 4.9% for the home price index, and 4.7% for cash, as shown by the bars at the right.

I think the real issue is that my friends are not looking at data. They’re listening to stories like Ryan’s—and ignoring stories like my family friend’s. Real estate, as they say, is all about location, location, location—and timing. They seem to assume they’ll be as lucky as Ryan (or Ryan’s parents) in getting both location and timing right.

I’m less optimistic. I’m investing in a well-diversified portfolio of stocks, while also putting aside some money for the home I hope to buy some day.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.

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