The Motley Fool – Billionaire Warren Buffett is used to throwing around massive amounts of money.
In 2010, he paid $34 billion to acquire a railroad.
In 2013, Buffett forked over roughly $12 billion in a deal that made him and his partners the owners of Heinz. That’s a lot of ketchup.
And as of today, his company’s top four stocks are almost worth a mind-boggling $70 billion.
Considering the amount of money Buffett is used to dealing with, one would expect Buffett to live in gaudy mansion or even his own private island. Surprisingly, that couldn’t be further from the truth. Buffett still lives in the same Omaha, Nebraska home he purchased in 1958 for a measly $31,500. Now, $31,500 today doesn’t buy you what it did in 1958, but even adjusted for inflation, that amount in today’s dollars is only around $260,000.
Here’s a picture of Buffett’s modest home…
Most Americans go through the home-buying process at some point in their lives – it’s a major financial decision. Even Buffett the Billionaire agrees. He has said:
“When people are making the decision of the magnitude of buying a house, it’s the biggest decision a great many families will ever make.”
One obvious reason the decision is so crucial is the amount of money involved in the transaction, but another reason is because it’s an emotional decision that will impact your family’s lives. Buffett said “for the $31,500 I paid for our house, my family and I gained 52 years of terrific memories with more to come.”
Given what we’ve heard from Buffett, from the perspective of what it means for a family, it sounds like the famous investor is a big believer in the American Dream of owning a home.
But what does Buffett think about buying a home from an investing perspective? Heck, his investing skills are what made him famous in the first place.
It’s clear Buffett is glad he bought a home because of the memories it gave his family, but he also stressed that “I would have made far more money had I instead rented and used the purchase money to buy stocks.” Had Buffett invested that $31,000 in stocks rather than a home, would his bank account really be that much bigger today?
This graph answers that question with an emphatic “Yes!”
Source: Yale’s Robert Shiller’s Real Home Price data and Morgan Housel (Real stock performance includes dividends)
The data is clear. Homes are an excellent investment when it comes to family security and forging memories, but as a financial investment, homes fall flat compared to stocks. The reason is fairly clear – your home is a physical asset that does not produce income and does not pay you dividends. Stocks, on the other hand, give you partial ownership in actual businesses that can grow earnings and increase in value accordingly.
Stocks are not lottery tickets – they allow anyone to be an owner of thousands of different businesses across the world. Buffett’s own investments reflect this – those top four stock holdings worth nearly $70 billion are household names that anyone can buy shares of: Coca-Cola, American Express, IBM, and Wells Fargo.
Owning a home has countless benefits, but if you’re looking to secure a comfortable retirement or a comfortable financial future for you and your family, buying and holding great stocks is the surest path.
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Source: The Motley Fool