As far as the financial debate goes between buying vs renting, it’s all about assumptions.Anyone who bought in the last 10 years in the various real estate hotspots (in Canada at least) will have done well and can use that as proof that home ownership is a great investment.However, nobody knows how much houses will go up in the future.The reality is that if they only appreciate by their long term increase of inflation + 1, then they are not such a great investment.
Dividend stocks are the same thing – they have done so well over the last ten years that everyone (including myself) is buying them now convinced that we can’t lose with them.Again the reality is that if the dividend increases over the next 10 years are more in line with their long term average of about 5% and the stocks are currently priced for more than that, the stocks won’t be such a great investment.Admittedly not a bad investment either, but anyone trying to do a Derek Foster starting now is almost sure to be disappointed.
The fact is that a lot of investments such as real estate and dividend stocks tend to do at least reasonably well over the long term in that they tend to go up in value.The problem is that we tend to think of “good investments” in relative terms so they are investments that do better than the average investment.Over the long haul, “investing” in your house probably won’t do as well as investing in the stock market and likewise, Canadian dividend stocks probably won’t outperform the market over the long haul, but that is real hard to believe given their history over the last ten years.
And finally a quote from Bernstein who is referring to the tendency of investors to look at recent history and conclude that it will continue forever, “Ignore the last ten years!”.
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