For at least the past 20 to 25 years, financial planners, mutual fund sales reps, Wall Street promoters, and various cheerleading professors of finance (most loudly, Jeremy Siegel of the Wharton School) have championed the mantra, “Stocks for the long run”; “Stocks for retirement.” These advocates of equities assert that over the long run, stocks outperform all other types of investments. “If your retirement still sits at least 10 years into the future,” they advise, “place 100 percent of your nest egg in stocks.” (Admittedly, the 2011 bull market in bonds converted a few of the stock market enthusiasts to a more balanced view—but the majority seem undaunted.)

In his widely read (and praised) book, Winning the Loser's Game, Charles Ellis encourages investors to place all of their money in stock index funds rather than property because (according to Ellis),

Owning residential real estate is not a great investment. Over the past 20 years, home prices have risen less than the consumer price index and have returned less than Treasury bills…. Own a home as a place to live, not as an investment.

Leave aside for a moment how Ellis arrived at his long-term house price figures—no data that I have seen (even if we factor in the recent downturn) report that long-term housing prices, relative to incomes or consumer prices, have become cheaper. However, Ellis errs most egregiously in another way. He does not understand ...

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