Investor Strategy in 2023: Real Estate vs Treasury Bonds

An old-school investing option grabbed a lot of headlines this summer. 2-year treasury bond yields hit a 16-year high earlier this month based on continuing inflationary concerns.

Investors rushing to buy bonds sounds like a scene from It’s a Wonderful Life, not a viral moment in 2023.

But a guaranteed 5 percent return on investment isn’t a bad deal, right?

When thinking about long-term investments, I’m always looking to balance growth and stability. Both treasury bonds and my go-to investment of real estate offer potential for growth and stability, but they differ significantly in terms of risk, returns, and involvement.?

My investment philosophy was formed during my career building companies from the ground up. I see all of my investable dollars as employees and partners. And I want to know they’re working as hard for my financial success as I am every day.

So how does a Treasury bond dollar stack up to a real estate dollar? So glad you asked. Here are the pros and cons I see for each strategy.

Treasury Bonds as Investment

Low Risk: Treasury bonds are considered one of the safest investments available. Because the government's credit backs them, the risk of default is low, making them a reliable option for risk-averse investors seeking stability.?

Predictable Returns: Treasury bonds usually have fixed interest rates and maturity dates. So investors can rely on regular interest payments throughout the bond's tenure, providing a predictable income stream.?

Diversification: Including Treasury bonds in a portfolio can help diversify risk. During seasons when the stock market experiences high volatility (hello, 2023!), Treasury bonds serve as a safe haven, balancing investors’ overall risk exposure.

Lower Potential Returns: While Treasury bonds are low-risk, they also offer lower returns compared to investments like stocks or real estate. In periods of low interest rates, the returns on bonds may not keep pace with inflation, potentially leading to diminished purchasing power over time.?

Opportunity Cost: By choosing to invest their hard-working dollars in Treasury bonds, investors miss out on the potentially higher returns that real estate investments can offer, particularly in a strong market.?

Liquidity Constraints: Unlike stocks or real estate, Treasury bonds may not be easily converted to cash before their maturity date. Selling bonds early may result in losses due to changes in interest rates.

Real Estate as Investment:

Appreciation: Real estate properties have historically appreciated over time, making them an attractive option for investors seeking capital appreciation. In growing markets, the value of real estate can increase significantly, offering a substantial return on investment.

Cash Flow: Rental properties generate regular cash flow through rental income, providing investors with ongoing income streams to supplement their earnings or support retirement goals.?

Tax Benefits: Real estate investors can take advantage of tax deductions for mortgage interest, property taxes, and depreciation, which can reduce overall tax liability.

Higher Risk: Real estate investments are subject to market fluctuations and economic conditions. During a downturn, property values can decline, leading to potential losses for investors, especially if they need to sell during a downturn.

Involvement and Management: Owning and managing real estate can require time, effort, and expertise. Many savvy real estate investors partner with experienced property management firms to outsource complex property maintenance, tenant issues, and market research.

Illiquidity: Real estate is a relatively illiquid asset, and selling a property can take time. In situations where immediate cash is needed, real estate may not be the most suitable option.

So choosing between Treasury bonds and real estate depends on an individual investor's financial goals, risk tolerance, and investment horizon. Treasury bonds offer stability and predictability, making them ideal for risk-averse investors seeking to protect and preserve their capital. On the other hand, real estate can provide higher returns, ongoing cash flow, and potential tax benefits but involves more risk.

If I’m still in a phase of investing where I want my investment dollars working as hard for me and my family as I’m working for myself, real estate is my preferred investment vehicle. The higher returns, leverage opportunities, appreciation, and tax benefits outweigh the higher risk and involvement.?

Ultimately, a diversified investment strategy that balances multiple asset classes is the smart approach, allowing investors to leverage the strengths of both Treasury bonds and real estate while mitigating their respective weaknesses.?

As with any investment decision, seeking advice from a financial professional is essential to building a strategy that considers your specific situation and goals.

For more information on how to add real estate to your portfolio in a way that supports your goals, call my team at (423) 682-8241.