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Surprise! Real Estate is the New Savings Account

I came across one of these beauties recently. One was given to my 25 year old daughter when she was maybe 2 or 3. Great Grandma was always taught to have a savings account, and she "knew" that the best way to do this was by buying US Savings Bonds.

Little did she know how interest rates would continue to fall. Technological advancements in the world, like the internet, and now innovations she couldn't have even imagined, have caused a disruption in our assumptions about the way things work. Joseph Schumpeter gave a name to this: creative destruction. Essentially advances in society will make some industries die, and new ones would be formed. Covid-19 propelled us even further into the future. Almost everyone knows how to Zoom and has ordered take-out via their mobile. Now look at the following chart and ask yourself, should I invest in a savings account or certificate of deposit?

It used to be that you would set aside money for the future in a savings account of some sort. It wasn't meant to be an emergency fund, but capital that you intended to set aside and grow safely over 5, 10, or even 20 years. When CD's were paying 5%, I used to hear people brag about the interest the bank was paying them. Not any more.

So what is the intelligent investor to do? Stocks are a great place for growth money. Cryptocurrency is certainly the future, but do you allocate all your money to stocks and crypto, and place the rest in a savings account? Institutional investors are smart and know that real estate has always been a safe haven for yield. They allocate a serious amount of capital to real estate. Why? Because it has a good return, and is non-correlating to other assets. Professor Jeff Fisher, a leading scholar on real estate, said: "commercial real estate is the best performing asset class of all time, moderately leveraged."

While we were busy watching world events for the last 20 years, something happened under our noses. The wealthy put their money in investments, while the poor and middle class put their money in savings accounts. I've seen first hand how my wealthiest investors knew real estate had to be part of their portfolio. I've also seen friends and family sitting with the majority of their wealth in savings accounts acruing little or no interest, while even a nominal inflation rate nibbles away at their hard-earned money.

I may be biased. Almost all of our family investments are in real estate, and now also renewables. However, having your savings in real estate still seems to make good sense.


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