FORTUNE -- As the real estate market recovers, so does America's faith in housing as an investment.
According to a Gallup poll released Thursday, a plurality of Americans now think of real estate as the "best" long-term investment, followed by gold, stocks and mutual funds, savings accounts/CDs, and bonds:
If one assumes "best" to mean the investment that offers the highest return, then Americans have things backwards. Real estate, on average actually returns very little when adjusted for inflation. Robert Shiller -- the economist famous for helping to create the widely cited Case-Shiller housing index puts it like this:
Home prices look remarkably stable when corrected for inflation. Over the 100 years ending in 1990 -- before the recent housing boom -- real home prices rose only 0.2 percent a year, on average. The smallness of that increase seems best explained by rising productivity in construction, which offset increasing costs of land and labor.
And since 1990, housing has continued to be a middling investment, when you take into account the bursting of the real estate bubble:
When adjusted for inflation, the average house has appreciated little since 1987. The picture looks a lot different for the other investments Gallup asked about it in its polls. The S&P 500, for instance, has produced an inflation-adjusted annual return of 6.32% since 1929, while investing in government debt would have returned roughly half that figure. Gold, interestingly enough, has performed pretty well on an inflation-adjusted basis, averaging a 4.12% return per year since the end of the Bretton-Woods monetary order in 1971.
If you break down the Gallup data into income groups, the answers are even more revealing. For one, wealthy Americans are more likely to pick stocks as the best investment than any other income group. This makes sense, as investing in the stock market is -- as the above data shows -- the best way to become wealthy.
Secondly, it appears as if people are likely to say investments they own are the "best." According to the Gallup report:
Upper-income Americans are much more likely to say real estate and stocks are the best investment, possibly because of their experience with these types of investments. Upper-income Americans are most likely to say they own their home, at 87%, followed by middle (66%) and lower-income Americans (36%). Gallup found that homeowners (33%) are slightly more likely than renters (24%) to say real estate is the best choice for long-term investments.
So wealthy Americans are the most likely to understand that stocks provide the best chance for a higher return, but they are also not free of the tendency to think that the thing they are doing (in this case, owning a home) is the intelligent thing to do.
Of course, this analysis takes for granted the idea that "best" necessarily means the investment that is most likely to make you the most money. There are, of course, other reasons why people might decide to invest in real estate. While it theoretically might make sense for an investor to rent his home and plow the money he saves on taxes, mortgage interest, and maintenance into the stock market, such a strategy might not work in the real world. First of all, people have limited time: They're going to spend a lot of energy choosing a good place to live, and might not also have the time to wisely manage securities investments too. Secondly, owning a home is a great way to force yourself to save money, as each mortgage payment is something you have to make, lest you risk losing your home.
Either way, if you decide to put your extra cash into real estate for these reasons, you should be aware that this is the reason you're doing it. As long as you don't expect your home to make you a lot of money on an inflation-adjusted basis, invest away.
Both assets attract a certain type of investor, but which will protect you against the worst?
FORTUNE -- Call it a battle of the doomsayers.
In some corners of the Internet -- where topics such as the collapse of the global monetary system or runaway inflation are the stuff of common, and lively, conversation -- one question in particular elicits particularly heightened emotions: is bitcoin as good as gold?
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The price of gold and gold miner stocks are highly correlated, but the decline in stock prices in recent years has far outpaced the decline in the price of the actual metal.Christopher Matthews - Feb 20, 2014 9:29 AM ET
Explosive growth in demand for engagement rings in China is helping to drive prices up.
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FORTUNE -- Gold has lost its luster -- at least as an investment. Since hitting $1,900 an ounce in the summer of 2011, the price of the shiny metal has plunged some 30%. That fall has prompted an exodus from gold-backed ETFs. But now investors are setting their sights on another precious material: diamonds.
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Patrick Byrne thinks bitcoin could be a helpful addition to the payment system and his company plans to accept the currency, but even he has mixed feelings.
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The expectation of the Federal Reserve's tapering isn't the only thing pushing gold prices down.
FORTUNE -- Up until last year, gold prices rose for at least 11 years in a row. The precious metal spawned a frenzy among everyone from gold bugs to politicos who think America should return to the gold standard. But today they're likely feeling nervous. Gold prices have entered bear market territory, having fallen by 22% MORENin-Hai Tseng, Writer - Sep 17, 2013 10:31 AM ET
In the wake of gold's continuing decline, financial survivalists stick to their guns.
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FORTUNE -- What happens when gold may no longer glitter enough to stave off the financial apocalypse?
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In times of turmoil, gold is considered a safe haven. So why is it still crashing now?
By Moshe Silver, Hedgeye
FORTUNE -- Gold is down more than 25% from its recent highs, leading some observers to declare it on track for its biggest one-quarter decline since the Bretton Woods system collapsed in 1971.
This is a bit misleading: the average price of gold in 1971 was around $40 an ounce. The following year MOREJul 8, 2013 2:38 PM ET
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