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You Could Have Made 30% More If You Bought Gold Instead of Toronto Real Estate

You Could Have Made 30% More If You Bought Gold Instead of Toronto Real Estate

In times of economic uncertainty, investors often look for an inflation hedge. Something that will appreciate closer to the true rate of inflation. The most popular move is real estate, but we wanted to see how that compares to the world’s second most popular hedge, gold. Turns out, Toronto real estate performed a little (okay, a lot) worse than gold.

Toronto Real Estate Prices From 1989

Toronto real estate had some pretty impressive returns over the past few decades. The average home at the last real estate peak in 1989 was $273,698. By the end of 2016, the average price was $729,922. This means, even accommodating a real estate crash, you would have made a 166% increase on your investment. Sure, some people (even in our office), argue that inflation eats most of the value of this investment. Although if you didn’t invest it at all, you would have lost more money through rising inflation anyway.

Gold Prices From 1989

Had you spent the same money in gold, you would have had a very different scenario. In 1989, the price of gold was CA$451.20 oz. Let’s say you spent the same $273,698 dollars, giving you 606.6 ounces of shiny rocks. In 2016, those rocks are now trading at CA$1,004 per oz, which makes your gold investment worth $1,004,104. This return is a 266% increase on your initial investment, or CA$274,182 dollars more than you would have made with a house. So if you spent less than that in rent, you came out on top.

Toronto Real Estate Vs. Gold

The above chart shows how an equivalent investment in gold (CA$273,698) at the height of the last market rush would have performed over time.

In no way am I advocating anyone buy gold, to me it’s just a shiny piece of metal rich folks trade amongst themselves. To be blunt, I have no idea why people assign value to it. It is curious that it did outperform one of the world’s best performing real estate markets over a 27 year span. Even more curious is Canada’s central bank has dumped all gold reserves. Meanwhile countries like Russia have been buying a ton (okay, 31.1 tonnes in January) to keep their currency relevant.

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7 Comments

  • Reply
    Alex 7 months ago

    “claim taxes”? not pay taxes?

    • Reply
      Kevin 7 months ago

      This makes no sense, averaging prices doesn’t show the real growth of real estate. The reality is my house in Toronto was $200k in 1992 and now it’s $2.2MM…my math shows that’s 1100%. So no amount of gold would have made this kind of returns.

      • Reply
        Dar Robbins 7 months ago

        Kevin, To be fair, that’s not your net gain. You must deduct the cost of upkeep, capital expenditures and taxes for each of those years.

  • Reply
    Walter Schwager 7 months ago

    This is not a helpful discussion – by choosing your time periods, stocks, commodities and real estate you can come to any conclusion. Nortel? If you bought gold in 2012 you would have lost your shirt.

  • Reply
    Dar Robbins 7 months ago

    I totally agree with Walter. You can pick any time window to justify your case.
    Moreover, you can play the leverage vs non-leverage talk as well. BTW, you can leverage anything if you have collateral. You can highly leverage gold using a futures contract.

    The only way to equitably compare gold to real-estate is to compare over 40 years or more to to smooth-out the highs and lows.

  • Reply
    John-Guy 7 months ago

    Houses were not 276000 in 1989 they were about 90000 and no one has cash when they buy a house they have a down payment . Plug in 5 to 25 percent of 276000 which is 60000 at 25 percent and see if your theory still works. And buy the way you still have to live somewhere. Or do you live in your mother’s basement thinking of ways you could have been rich because you didn’t but a house.

  • Reply
    Dar Robbins 7 months ago

    I believe the title of this article is misleading the readers in debating which is better.
    IMHO, you should have both in a diversified portfolio as they’re both good and has served well in protecting those against of the ravages of monetary inflation created by the Bank of Canada.

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