Canadians are fed up with the stock market – why buy a broadly diversified ETF or low-cost mutual fund when you could put all your eggs in the housing market? Many investors may be surprised at how well the Canadian stock market has performed over the past decade (or more), relative to the Canadian housing market.
In the chart below, I’ve compared the growth of $1 invested in the S&P/TSX Composite Index (total return) to the growth of $1 invested in the Teranet-National Bank House Price Index for three separate Metropolitan areas; Montreal, Ottawa, and Toronto:
Sources: Teranet and National Bank of Canada, Dimensional Returns 2.0
For the September 1998 to August 2011 period, the results would indicate that Canadian stocks were the overall winning investment (albeit with higher volatility). While this may not be the case going forward, diversification is one of the few remaining “free lunches” in the investment world, and should not be cast aside for hot real estate tips from your brother-in-law.