A Comparison of Investments: Traditional Stock Market vs. Real Estate Crowd Funding

by Gina DiMasi on September 23, 2019 · 2 comments

Investments

If you listen to any real estate or even personal finance podcast, I am sure you have heard about real estate crowd funding, as a means of investment. A lot of people despise this and would not even consider it an investment while others are very open to it and state that they have had quite nice returns from this type of investment. Your personal preference is the ultimate decider when it comes to your portfolio, however the goal of this article is to compare real estate crowd funding to more traditional forms of investment to help you make an informed decision. 

Comparing The Basics

Traditional investments, like stocks and bonds, are bought through your brokerage account or can be purchased through your retirement accounts (IRA, 401k, etc.). These assets are bought through one of the many stock exchanges and once you buy them you have part ownership in the underlying asset. You can sell them or hold them for as long as you’d like.

Similarly, when you invest in real estate through crowd funding, you take part ownership in a property. You can sell that ownership or hold it for as long as you’d like. Both investing in real estate through crowd funding and investing in the stock market are regulated by the SEC (Securities and Exchange Commission) as well.

Comparing Returns

For comparison purposes, we are picking only two specific investments to make it more of an apples to apples style of comparison. We are looking specifically at the S&P 500 for traditional investments and Fundrise for the real estate crowd funding investment (Fundrise is one of the few online websites that allows non accredited investors to join in on the fun).

In 2017, the S&P 500 returns were 19.4%. To compare, in 2017 Fundrise had total returns of 11.44%. These both are incredibly high returns when you look at the average of the S&P 500 since 1926 (creation of S&P 500 index) is only 7% but I would take 19.4% over 11.44% any day, right?

However, if we keep our assumption going and look at 2018, the S&P returns were at -6.2% when Fundrise’s returns were at 9.11%. Another pretty shocking difference.

I think this more speaks to the volatility of investing in any sort of asset. The natural one that most people would assume is safer would be the S&P 500 due to the fact that we have more historical data on it since Fundrise only has historical data back to 2014.

Again, the volatility factor is what is key here. You, as a smart investor, should know that any investment will face major swings but you’re sticking it out for the long haul so when you zoom out, these swings don’t look nearly as bad.

Also, this is a case to prove the power of diversification. If you were only invested in the S&P 500 in 2017 and 2018, you would have faced major gains but also major losses! On the other hand, if you were diversified into the S&P 500 AND Fundrise, then you would have seen still pretty nice peaks but not as deep of pits.

Final Thoughts

I think we can all agree that whether you chose real estate crowd funding or the more traditional investments in the stock market, it is vital to your financial success to invest. This article proves that you should be diversifying your portfolio and that real estate crowd funding may not be a bad strategy for it. Especially if you do not want to deal with the real assets that revolve around real estate.

Do you invest in real estate crowd funding? If so, let us know in the comments!

For more recent Dink’s articles, check out these reads:

{ 2 comments… read them below or add one }

1 garry ballance September 23, 2019 at 7:29 am

Thanks for this post.

2 Gina DiMasi September 23, 2019 at 4:11 pm

Glad you enjoyed it!

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