The Worst Investment Ever?

I often like The Motley Fool for their folksy, no-nonsense style of writing. Their writing style is probably inspired by that of the legendary investor Warren Buffet (who can forget his Time article couple of years ago on Thriftville vs. Squanderville? It should have been a wakeup call to the American politicians to do something about the balloning U.S. trade deficit but alas!). Okay, I digress.

http://biz.yahoo.com/fool/070518/117951154741.html?.v=1&.pf=real-estate

Anyway, the above article is an attempt at comparing a primary home as an investment versus other financial asset classes. While the home has historically never been a great investment (over 80 years of data show that home prices generally keep pace with inflation and do marginally better in some cases) versus stocks, calling it the "worst investment ever" is extreme even for me, who has written articles against real estate in my blog. I can certainly think of several investments that may qualify for the ignominious title than a primary home.

While the article certainly makes valid points, it ignores a fundamental premise of investing. The comparison between primary home to stocks is apples-to-oranges, because most people don't think of stocks or other asset classes as an alternative to buying a primary home. It is fair to compare the financial assets with investment real estate (such as REITs, income-generating properties, time-shares or even vacation homes) but a primary home is bought with the sole purpose of living in it. No other asset class provides an acceptable substitute!

While I am not in favor of real estate in these (still) overpriced market conditions, purchasing an affordable primary home for those who plan to stay in a location for at least 10 years is generally a good decision, even financially. A balanced article would have advised its readers to purchase the least expensive primary home that one needs for one's family and put the rest of the monthly savings to work in the asset classes that return a higher yield, like stocks. To call the primary home the "worst investment ever" is like saying, having a child is the "worst financial decision" a family can make.