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Americans still think it’s financially savvy to dump all their savings into a single, large, highly illiquid asset

Even though we just went through one of the worst recessions in U.S. history that was arguably caused directly by this attitude, Americans still view their homes as the best single investment available to them. I would argue that, as a general rule, this is untrue and unhealthy.

But this piece by Catherine Rampell of the Washington Post says it better than I can. You can read the entire article, but the following statistic illustrates the point:

Over the past century, housing prices have grown at a compound annual rate of just 0.3 percent once one adjusts for inflation, according to my calculations using Shiller’s historical housing data. Over the same period, the Standard & Poor’s 500-stock index has had comparable annual returns of about 6.5 percent.

In addition, Nobel Prize winner Robert Shiller says it well…

“People forget that housing deteriorates over time. It goes out of style. There are new innovations that people want, different layouts of rooms… and technological progress keeps bringing the cost of construction down.”

Therefore, without continual upgrades, “your worn, old-fashioned home is competing with new, relatively inexpensive ones.”

This is not to argue one shouldn’t own a home… quite the contrary. You have to live somewhere, and homeownership does offer some nice benefits (including tax breaks). But that’s different than saying it’s the best investment option available.