“In my mind I would be throwing money away by investing in bonds, real estate, gold, etc.”
Real estate and commodities offer high levels of leverage. For example, a house that appreciates at 5% a year doesn’t seem like a good investment and if you hold it for a year, it is a horrible investment. But let’s say you live in a house for 10 years, you put 5% down and your carrying costs are the same as rent. Your investment is the down payment only, since your tax/mortgage/maintenance expenses equal what you would pay in rent.
After 10 years, you house is worth 62% more than you paid for it. So your house cost $100, you paid $5 down and now it is worth $162 or $62 net. $67/$5 = 1340% return or about 30% annualized.
But you live in the house, and you can’t claim that return without selling your house and you need someplace to live. Refinance, cash out the equity and invest in something with better cash on cash return?
Great idea in theory only? But your goal is to pay off your mortgage? Buy a rental property that is cash flow positive or break even and you are putting yourself in the same scenario.
Don’t want to be a landlord? This is where REITs come in. They have less leverage but also less risk, since they are diversified into multiple properties. They are likely cash flow positive and pay a dividend. REITs are relatively new having been only created in 1960 in the US and indexes tracking them are just now being created. In 40 years, expect to see a REIT index compared to a bond index compared to a stock index, but the data just isn’t there yet.
Real estate shouldn’t be discredited as an investment vehicle, even if the bubble pops, people and corporations will continue to profit from real estate investments.
Commodities are probably out of most peoples risk tolerance and should be discredited for that reason.