As stocks plummet and recession fears grow, there’s one silver lining worth highlighting: the increasing value of your home, if you own one. A home is a fundamental necessity for survival, stocks are not. So, the government sacrificing your stock portfolio to strengthen or preserve your housing situation can be seen as a net benefit.
Many of us are scratching our heads wondering why President Trump and his administration would intentionally tank the stock market and push the economy into a recession with new tariffs. After all, about 62% of Americans own stocks in some form, according to Gallup. Meanwhile, the poorest citizens get squeezed the most since they spend the highest percentage of their income to survive.
But 66% of Americans own homes, per the U.S. Census Bureau. Since more people own homes than stocks—and a home provides essential shelter—it stands to reason that real estate is far more important than stocks. If that’s the case, it’s also logical to allocate more of your net worth toward real estate than equities.
Don’t Fight the Government or the Fed, Who Prefer Real Estate
Since 2009, I’ve been in the real estate vs. stocks debate. I invest in both, but I’ve long preferred real estate—ever since I was a 32-year-old launching Financial Samurai. Now, at nearly 48 with a family to support, I still do.
Let’s not forget: I worked in equities at Goldman Sachs and Credit Suisse from 1999 to 2012. I’ve lived through enough bubbles and crashes to know stock market volatility lowers my mood. With stocks, you can be up big one day and down even more the next. A year's worth of gains can be wiped out in a month or less. Real estate, on the other hand, is far more slow and stable.
The government clearly favors real estate. Why fight that? The Trump administration wants a lower 10-year Treasury yield to reduce interest payments on national and consumer debt. A lower yield also leads to lower mortgage rates, which enables more Americans to refinance or buy homes. Of course, if they go too far and cause a spike in unemployment, the whole strategy could backfire.
My goal for this post is to help those who dislike real estate see it in a better light. It isn't to bash stocks. Real estate is my favorite asset class for the typical person to build long-term wealth. The combination of rising rents, rising property prices, and declining mortgage balances is a powerful wealth creator.
However, I feel like I've been losing the argument over the years to my peers who promote being 100% invested in stocks and renting. So I'd like to use this latest market meltdown as a way to bring more balance to the debate.
Treasury Secretary Scott Bessent's View On Helping The Middle Class
To better understand Trump and Bessent’s ideology on disrupting the stock market to help the middle class, here’s a short interview clip. Treasury Secretary Bessent points out that the top 10% own 88% of all stocks, while the bottom 50% primarily hold debt.
As a result, they’re trying a different approach to provide meaningful relief to the middle class. Unfortunately, at this pace, the middle class will be negatively impacted the most with rising mass layoffs.
Real Estate Has Better Tax Benefits Than Stocks
Besides its utility, income, and relative stability, real estate’s tax advantages are a huge part of its appeal.
Investors can deduct depreciation, a non-cash expense, to reduce taxable income. You can depreciate a property’s value over 27.5 years (residential) or 39 years (commercial), reducing taxable rental income For example: $30,000 in rental income – $15,000 depreciation = only $15,000 taxable.
Even better, married homeowners can earn up to $500,000 in tax-free capital gains when selling their primary residence, as long as they’ve lived in it for two of the past five years. With the median home price around $400,000, that's a potential 125% tax-free gain for many Americans!
Compare that to public stocks, which offer no such tax-free gain. The only exception is if you're an angel investor in Qualified Small Business Stock (QSB), where you can exclude 100% of capital gains up to $10 million or 10x your basis. But the risk? Over 90% of private startups fail, so you're likely never going to benefit from QSB in the first place.
Here are additional tax benefits real estate offers over stocks:
1. 1031 Exchange (Tax-Deferred Growth)
Sell an investment property and defer capital gains taxes by reinvesting in a like-kind property. This allows you to compound real estate wealth tax-free until you eventually sell without doing a 1031 or die.
There’s no 1031 equivalent for stocks.
2. Mortgage Interest Deduction
You can deduct mortgage interest on investment properties, further reducing taxable income. Pair it with depreciation, and your real income can look surprisingly low.
Stocks don’t offer anything similar—unless you’re borrowing on margin, which I don't advise.
3. Deductible Expenses
You can deduct maintenance, insurance, travel, property management, HOA fees, legal costs, and more.
You might even be able to buy a 6,000-pound vehicle and deduct the full cost of the vehicle from your business taxes using Section 179 or bonus depreciation. If you bought the heavy beast before reciprocal tariffs were launched, your truck or SUV may also be worth 25% more, another bonus!
Stock investors? Only limited deductions, especially after the 2017 tax law changes.
4. Self-Employment Tax Advantage / Real Estate Professional Status
Rental income isn’t typically subject to self-employment tax. The current tax rate for Social Security is 6.2% for the employer and 6.2% for the employee, or 12.4% total. The current rate for Medicare is 1.45%.
Stock dividends also avoid self-employment tax—but active trading can trigger it if considered a business.
Further, if you qualify for Real Estate professional Status (REPS), you can use rental losses to offset ordinary income, saving potentially tens of thousands in taxes. There’s no similar perk for stock investors.There’s no similar perk for stock investors.
How Big Of An Additional Price Increase For Real Estate By Sacrificing Stocks
To calculate how much of a price boost real estate gets by sacrificing stocks, we can calculate the derivative effect a drop in interest rates have on home affordability. We must also assume the economy doesn’t go into a severe recession.
We know that during times of uncertainty and chaos, investors tend to sell stocks and buy Treasury bonds, which causes yields to come down. This is exactly what is happening during Trump's tariff wars with the 10-year Treasury bond yield plummeting to as low as 3.89% from 4.8% at the beginning of the year. Although, Treasury bond yields are spiking again to 4.15%.
Let’s break it down with some math based on a 30-year fixed-rate mortgage, assuming a 20% down payment ($100,000), and borrowing $400,000 on a $500,000 home.
Every 0.25% mortgage rate drop results in a $64 – $67 decline in mortgage payment, or about $780/year. A $65/month decline in mortgage payment also means you can afford $10,000 more house, which equals 2% on a $500,000 house.
Therefore, every 1% drop in mortgage rates results in an 8% boost in home prices on average. Given mortgage rates have fallen about 0.7% since the start of the trade wars, we can calculate that sacrificing stocks has resulted in a ~5.6% boost to your home and real estate portfolio. This is on TOP of whatever the estimated price action would be if there was no tanking of the economy by Trump.
Net Worth Calculation Example: How Real Estate Helps During Tough Times
Let’s say your net worth is diversified as follows:
- 30% Stocks: Down 20% → contributes -6% to your overall net worth
- 50% Real Estate: Normally up 3%, but with a 5% relative boost due to the “stock sacrifice,” let’s say it's up 8% total → contributes +4% to net worth
- 20% Bonds and Cash: Up 2% → contributes +0.4% to net worth
Net Worth Impact:
-6% (stocks) + 4% (real estate) + 0.4% (bonds/cash) = -1.6% overall
Instead of being down 20% if you were 100% in stocks, your diversified net worth is down just 1.6%, thanks largely to real estate cushioning the blow. Hooray for diversification!
But here’s the kicker: if your real estate exposure is based on total property value (not just equity), the positive impact is even greater if you have a mortgage. For example, if you own a $1 million property with $250,000 in equity and it rises 8%, that’s an $80,000 gain on just $250,000 invested, a 32% return on equity.
Most Americans have the majority of their ~$192,000 median net worth in their homes. Hence, the government wants to protect it.
Eventually, you might grow wealthy enough to have a paid-off home. In such a scenario, the comfort and and security it provides during downturns is invaluable.
Enjoy Your Stable, Loving Home And Real Estate Portfolio
With capital fleeing volatile stocks and flowing into bonds and real estate, now is the time to appreciate your home. Real estate acts like a bond-plus investment—generating income and often appreciating in value in uncertain times.
If you own rental properties in supply-constrained areas, treat them well. They're likely to keep delivering semi-passive income and growing in value.
Yes, of course, maintaining properties requires more time and effort compared to stocks, which are 100% passive. However, there’s a certain satisfaction in actively caring for and improving a tangible asset, rather than being entirely at the mercy of external market forces with stocks.
When I compare my absolute dollar gains from the S&P 500 to those from real estate, it’s not even close. Thanks to tax breaks, leverage, and long holding periods, real estate has made me far more money. For the average American household, I suspect the results are similar.
Remember, stocks are considered funny money because they provide no direct utility. You must occasionally sell them to capitalize on their value, otherwise, there’s no point in investing.
Find Your Asset Allocation Sweet Spot For Stocks And Stick To It
Continue investing in stocks for long-term growth. Dollar-cost average in and buy the dip for you and your children. But when the stock market tanks, that’s when you need to deeply reassess your true risk tolerance. Too many people overestimate their risk tolerance if they've never lost a lot of money before.
For me, the sweet spot is having stocks represent 25%–35% of my net worth. Figure out your own comfort zone—and stick with it.
Remember, you can't sleep in your stocks, but you can in your home. During tough times, cherish your home and real estate portfolio. Not only are they serving a tremendous purpose, but you're likely also earning from them.
Readers, do you think the latest stock market correction and this post will help real estate skeptics overcome their bias and view real estate more favorably? Why do you think more people don’t recognize the long-term wealth-building potential of real estate? If you own both stocks and real estate, how have your absolute dollar returns compared?
Invest in Real Estate More Strategically Without the Hassle
If you’re not interested in taking on a mortgage and managing physical real estate, you can invest 100% passively through Fundrise. Fundrise is my preferred private real estate platform, focusing on residential and industrial commercial real estate, primarily in the Sunbelt, where valuations are lower and yields are higher.
I’ve personally invested over $300,000 with Fundrise to diversify away from my pricey San Francisco real estate holdings and generate more passive income. With technology driving a long-term migration to lower-cost areas of the country, I’m eager to capitalize on this trend.
During times of extremely volatility, I appreciate the stability of investing in private real estate and venture with Fundrise. Fundrise is also a long-time exclusive sponsor of Financial Samurai, as our views are aligned.
The other lesson is that if you rent and own stocks, you are big time losing at this moment. But at least you have more flexibility to cut costs in case of a job loss.
It’s baffling how aggressively the government is moving for their idealogy. Millions of people will suffer as a result.
The rich really do get richer.
Your uncritical presentation of Scott Bessent spouting Orwellian nonsense, in an interview with Tucker Carlson (an adjudicated liar and noted white supremacist) seriously has lost me and my Asian family as readers. This is also insulting to those of us who don’t have real estate options in our 401(k)s.
Nobody is being helped by this except politicians who can legally trade on inside information. I’ve admired and recommended your work to friends for years but won’t in the future. In fact I will do the opposite. I’m so disappointed.
I appreciate your emotion Joseph. It is difficult times right now. Although it might temporarily feel good taking things out on me, it won’t help your finances.
Don’t let the presentation of trying to understand WHY Bessent and Trump are purposefully tanking the economy get in the way of taking action. Your response may be what Tucker Carlson wants, to create dissension and infighting among other people. Stand strong!
Feel free to provide a critique of what Scott Bessent said, and the solutions and silver linings as a result. Otherwise, what’s the point?
My goal for this post is to understand why this is happening and to find some positives around a difficult situation. As an investor, it’s vital to understand the idealogy in order to make risk-appropriate decisions. At the end of the day, nobody is going to save us, so we must save ourselves.
Related: How I’d Invest $250,000 Today
Wow, taking out your rage against Sam, who simply gave us the answer as to why the Republicans are tanking the stock market, shows how mentally weak you are. No wonder why the Democrats lost so badly. It’s not good to be overly sensitive and to shoot messengers, especially ones that are trying to help people make sense of the chaos.
Go yell at your girlfriend or wife if you have one.
Great post Sam and the timing is good. I especially appreciate the net worth calc example.
This is why owning your own company/companies, real estate, publicly traded stocks/etf’s/mutual funds, physical gold, guns, and even some bitcoin is very important. Let no single asset class represent a majority of your net worth.
In times of challenge, many assets move in tandem, but not always.
Second thought – public stocks are not short term investments for most of us. Don’t buy stock if you plan on owning it for less than a year. If you’re under 60, plan to own any stock you buy for 20+ years. You don’t make nor lose any money until you sell.
Taking care of the bottom 80% of earners in this country will ensure that our subsequent generations will have the same asset acquisition opportunities that we’ve enjoyed.
Thanks. Good advice on investing for the long term when it comes to stocks, but really, almost every investment. And if we do look out for generations ahead, hopefully our children will benefit the most from this current massive change in world order.
So psychologically, if you are a parent, to make yourself feel better, you can tell yourself that you are willing to sacrifice this pain now so that they may live a brighter tomorrow. I can get behind that if millions of households aren’t severely impacted before then.
Having 50% of net worth in real estate has certainly helped me cope with the ongoing stock market sell off. And having no mortgages makes it easier to keep dollar cost average investing into the stock market. Even then, it’s psychologically challenging to do.
It is not easy indeed. The psychological aspect of investing during a downturn with your precious cash while losing a lot in your existing investments is tough to wrestle around. But we must stick to our investment game plan and think about the benefits of lower prices and other silver linings to help us get through it. That’s what I’m doing right now.
Here was a post I wrote shortly after lockdowns in March 2020: How To Predict A Stock Market Bottom Like Nostradamus. Have to get the mind right.