Investing in government bonds (Btp) and real estate can be equivalent in the long term as an investment if inflation does not rise too much, while pension funds can yield more if the level of risk is higher. This is the conclusion drawn from a study conducted by Moneyfarm comparing the three favorite forms of investment among Italians.
When considering the longest Btp currently on the market, with a maturity date of 2072, the gross coupon would be 2.15%. However, taking into account that the purchase price is significantly lower than the nominal value (around 61), the effective coupon, net of withholding tax, is slightly above 3.1%. This is comparable to the average rental yield of a property.
According to Moneyfarm, to determine which of the two investments has the highest return in the long term, „the key variable is inflation and the ability of real estate to adjust rental rates and selling prices to price increases.“ „If the property owner could adjust the rent annually based on inflation,“ it is explained, „the real estate investment would outperform the Btp, which by definition does not adjust for inflation.“
When comparing the average real estate return, which is the sum of net rents, with the equivalent capital obtained from a pension fund for the same invested capital, the result changes depending on the chosen risk profile for the fund. With a real estate income exceeding 174,000 euros with rents at 75% of inflation, the 40-year return of a pension fund can vary between 180,000 and 540,000 euros depending on whether the risk profile is low (government bonds in Europe) or high (global equities).
In conclusion, while Btp and real estate can be comparable long-term investments, the potential for higher returns lies in pension funds, especially when opting for a higher-risk profile. It is essential for investors to consider their risk tolerance, investment goals, and inflation expectations when choosing between these investment options. By diversifying their portfolio and staying informed about market trends, investors can make informed decisions to maximize their returns in the long term.