3 Reasons to Consider Bank Stocks Instead of Homeownership: Goldman Sachs Group, Inc. (GS), Wells Fargo & Co (WFC), JPMorgan Chase & Co. (JPM)

3. You’re leaving yield on the table

Imagine that our hypothetical home buyer described above purchased that home about 30 years ago in 1982. Adjusting for inflation, when that mortgage was paid off in 2012 the initial $50,000 investment would be worth $56,896 in real dollars. This 13.8% gain over 30 years on the initial $50,000 investment (again, adjusted for inflation), represents just $211.66 per year.

Addressing the same scenario, but ignoring inflation, the value of the home purchased would have increased 2.5 times (nominal median home price in 1982 was $66,376 versus $170,106 in 2012). The same $50,000 investment in the S&P 500 in 1982 would have returned 12.58 times by 2012.

Wells Fargo & Co (NYSE:WFC) currently has a return on equity of 13.4% annually. JPMorgan Chase & Co. (NYSE:JPM) has ROE of 10.9%, and Goldman Sachs Group, Inc. (NYSE:GS) has 10.8% ROE. Compare that to annualized return on investment of the home purchase scenario of just 0.30%.

It Boils Down to Risk and Reward

There are certainly valid reasons to invest in a home, and for many investors it is both prudent and profitable.

Studies have shown that neighborhoods with high percentages of homeownership have less crime and have a greater sense of community. There is a feeling of security and stability in owning your own home that is invaluable to raising a family. And of course there is the possibility that history does not repeat itself, and the real estate market outperforms the stock market over the next 30 years.

But to move forward with a home purchase without considering the alternatives is a mistake. The Financial Crisis taught us many things, perhaps most of all that there really are no sure things. For most Americans buying a house means taking on a significant debt burden, super concentrating their investment portfolio into real estate, and likely leaving a lot of yield on the table.

Instead of investing in a new home and paying Goldman Sachs Group, Inc. (NYSE:GS), JPMorgan Chase & Co. (NYSE:JPM), or Wells Fargo & Co (NYSE:WFC) 2/3rds of your monthly payment, why not rent a place that rents for 2/3rds the cost of the payment, save the other 1/3rd in a savings account, CD, or bond fund, and then invest the cash for the downpayment in a diversified equities index fund? Think about it. Your net worth will thank you.

The article 3 Reasons to Consider Bank Stocks Instead of Homeownership originally appeared on Fool.com and is written by Jay Jenkins.

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