Build Wealth - Buy home or stocks (first)

(Gloria Steinem)

In the states, the arrival of Spring and (now) Summer ushers in home buying season.  Shaking off the last of the lingering cold, prospective buyers and sellers prep for this sacred, seasonal ritual.  Buyers do (daily) Zillow search and then trek from open house to open house in hopes of finding THE ONE (or THE ONE for now). Meanwhile, sellers work feverishly to spruce up their home to appeal to as many buyers as possible.  

Unlike previous years, rather than sharing with you my Summer reading recommendation(s), I want to take advantage of the timing right now to look more closely at an assumption I often see among most women, if not people: a home is a great (financial) investment and the foundation for building wealth.  Here’s a typical conversation I have with a (female) client or prospect… 

Me: So, tell me.  What is your key financial goal(s)?

Potential (Female) Client:  It’s always been a dream of mine to buy a home.  Nothing big or flashy.  Just enough space to call my own, my personal sanctuary.  Also, I want to establish a financial foundation to build wealth (quickly).  Stocks go up and down, and don’t feel stable or real.  But, a home is stable and tangible.  If the economy tanks, I can still live in my house, which will continue to appreciate over time.

Me (raining on her parade):  I hear you.  I hear this a lot.  Most of women I speak with assume that a home is a great financial investment.  Unfortunately, based on my professional experience and the numbers, this assumption is wrong.  A home is a great EMOTIONAL INVESTMENT, but it’s a FINANCIAL EXPENSE.  In confusing apples for oranges, many women prioritize buying an asset (home) that ironically keeps them financially behind for years, if not, for life.  

(Potential client looks doubtfully at me =)    

Returns over time – Stocks vs home

Since the majority of my clients are their 20s-40s (age), building wealth is their primary financial focus.  And, most women assume the best place to start is by buying a home. Additionally, since COVID (2020), home prices have increased by ~50%.  (See line graph below.)  

SOURCE: “Map Shows Where Home Prices Have Soared the Most And Least Since COVID,” Newsweek, July 2026. 

As is, some feel like they’ve missed the boat, while others feel like they should get on the bandwagon as soon as possible.  And, they look to me for guidance regarding this big financial “investment”: When is a good time to buy?  How much home can I afford?  What financial terms are best for me – 15 yrs, 30 yrs, ARM (adjustable)?  Interestingly, few ask me how home ownership fits into their overall financial goals, if at all.  My guess is most assume a home is the best long-term financial investment they can make.  So, best get started!

Since I’m a financial planner, my typical response to clients’ priority/goal is to look at the numbers (bar graph below).   While the info is slightly dated, the overall return trend for different asset classes still holds true.  Over the last 30 years (ending 2022), the S&P 500 (benchmark for US stocks – green bar) has an annualized return of 9.5% vs 4.2% for a home (one of the gray bars to right hand side).  

Source: JP Morgan Wealth Management, 2022.

How can this be?  Reason being, a home is an emotional asset, but it’s a financial expense.  (Let me count the ways.)  When you buy a home, you usually have to take on hundreds of thousands of dollars in debt (aka mortgage).  Additionally, there are ongoing cost of owning a home: mortgage at ~6% (at least) interest rate; property tax = 1% of home value annually; maintenance cost = 1% of home value annually (average); insurance, which continues to rise due to climate change; transaction costs for selling a home is about 5-6% of sale’s price; and then there’s sales tax (of course).  To make matters worse, a home is fairly illiquid, which means you typically can’t sell a piece of it to address incidental cash needs.  It’s usually an all or nothing decision.    

(Side note: To those who argue that a home appreciates more quickly on the coasts, I’d remind you that the purchase price is also higher and, therefore, the cost of ownership. These factors erode overall net return and, thus, bring them down closer to national average 4.2%…Sorry to pop your bubble.)

Meanwhile, unlike buying and owning a home, one can typically start buying stocks with a small amount of money.  There’s no need to take on debt, much less a few hundred-thousand-dollars of it.  Additionally, the cost of stock ownership is low, if not negligible, especially if you buy and hold (ideal).  Finally, it costs little, if anything, to sell stocks.  And, if the sale is made in a tax-advantaged account (e.g., 401k, Traditional IRA, Roth 401k/IRA), then capital gains tax is deferred until withdrawal/distribution in retirement (usually). 

Additionally, stock sales in a brokerage account are taxed at lower capital gains tax rate (0-20%) vs higher ordinary income tax rate (0-37%) if you’ve owned asset > 1 year.  Also, if your ordinary income is relatively low during year of stock sales, then your capital gains tax rate will also be low(er); capital gains tax is based on ordinary income.  Moreover, unlike a home, there’s greater flexibility and liquidity with stock ownership.  For example, you can more easily time and sell stocks in increments (10 shares, 20 shares, 30 shares) to meet your financial needs vs having to sell the whole thing all at once (like a home).    

Building wealth more quickly and safely over time

Given the annualized return of stocks (9.5%) vs home (4.2%), for those interested in building wealth more quickly, prioritizing owning stocks over a home first is the better and safer path to take ironically.  An effective way to do so is by maxing out your tax-advantaged accounts: 401k, Roth IRA, HSA…and (even) brokerage acct.  For those still in doubt, look at cumulative return of stocks (S&P 500) vs home over the past 35 years (line graph below).  This is what the annualized return difference (5.3%) between stocks and home compounded over 35 yrs look like!!!  Quick Explanation/Clarification: Orange line = home return; green line = S&P 500 return without dividends; blue line = S&P 500 return with dividends. Assuming you reinvest dividends over time (blue line), S&P 500 returns 4,632% (or 13xs) more than a home over the past 35 yrs.  It’s not even close, ladies!   

Regardless, here’s a common pushback I hear: “I can live in my home and, thereby, save a lot on rent as I wait for it to appreciate over time.”  To this, I say it’s important to factor in all the risks you’re taking by buying a home, the biggest one being assuming hundreds of thousands of dollars in debt.  Then, you’re on the hook to service that debt month after month (mortgage payment) for 30 years (typically).  Should you lose your job and/or health within that timeframe, you face the risk of default and, thereby, losing your home and all the financial and sweat equity you’d put into it.  

Also, in my opinion, until you’ve completely paid off your mortgage and own the home outright, you’re still technically a renter; the bank is the real owner of your home.  Finally, there’s opportunity cost, which is invisible, but greatly impacts your bottom line.  By deferring hundreds of thousands of dollars into buying and maintaining a costly, illiquid asset like a home, you miss out on the opportunity to invest that money in an asset (stocks) that’s less costly, highly liquid and returns many times more the longer the timeline.  As is, given all the costs and financial risks associated with home ownership, in my opinion, an annualized return of 4.2% seems less compelling.  When considering buying a home, the important question to ask yourself is whether the emotional payoff makes up for the financial risks and set backs you’ll have to take on.