What has the best rate of return: a savings account, a home, or index funds?

When thinking about where to put your money, I often get questions about which high yield savings account is best. They’re all so low these days it just doesn’t matter.⁣‎
Cash under the mattress obviously isn’t a good way to go.⁣⁣⁣⁣‎
And your primary residence is more of a forced savings account than a great investment. The 3.7% rate of return shown here is based on the S&P/Case-Shiller U.S. National Home Price Index which tracks “same home” sale prices. This doesn’t even account for the expenses of owning a home (taxes, insurance, maintenance, realtor fees, etc). If you include those the average return is negative.‎
Index funds are still king. Buying and holding index funds is the most efficient and effective way to grow your wealth.⁣⁣⁣⁣‎
When I talk about index fund returns, I often hear “That’s not realistic! What about inflation?!” And for sure, that’s an important factor. A million bucks in 40 years from now won’t be able to buy as much as it would today.⁣⁣⁣⁣‎
But if you account for inflation, the math is even more ugly for everything but index funds. Assuming inflation of 3% per year, your $120,000 invested under your mattress would be worth only $68,316 today. Your savings account would barely have held. Your house would barely outpace inflation being worth $138,438 (just $18K more than the $120K you put into it). But your index fund investment, after accounting for 3% of inflation would still be worth $800,469. Close to a million bucks. And almost SIX TIMES MORE than the EXACT SAME amount of money invested in your primary residence.⁣⁣⁣⁣‎
One last caveat: While an S&P 500 index fund is great, I personally think it’s a better strategy to invest in a TARGET DATE INDEX FUND. That has the S&P 500 index fund inside of it and is better diversified⁣⁣⁣.‎
As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.⁣⁣⁣⁣⁣⁣⁣⁣⁣⁣⁣⁣⁣⁣⁣⁣⁣⁣⁣⁣⁣⁣⁣⁣‎
– Jeremy⁣⁣⁣⁣⁣⁣⁣⁣⁣⁣⁣⁣ ⁣‎
via Instagram


Learn about money or lose it

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Jeremy Circle

Hi, I’m Jeremy! I retired at 36 and currently have a net worth of over $4 million. 

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