💰 What $100,000 in an Index Fund vs Real Estate Looks Like in 20 Years

Short answer:

Using simple, reasonable assumptions, $100,000 in a broad index fund could grow to about $344,000 after tax in 20 years, while $100,000 in a well-structured real estate deal could grow to around $878,000 after tax, with more complexity, less liquidity, and different types of risk.

Let’s see how we get there.

1️⃣ Assumptions for the Comparison

To keep things clear and educational, we use two simplified scenarios with explicit assumptions. These are not predictions or guarantees, just illustrative examples.

Scenario A – Index Fund (Public Markets) 📈:

• One-time $100,000 investment into a low-cost, diversified index fund (e.g., an S&P 500–type fund).

• Assumed annual return: 7% per year (after fees, before taxes).

• Buy-and-hold for 20 years.

• At the end of 20 years, gains are taxed once at a 15% long-term capital gains rate.

No trading, no timing the market, just a long hold.

Historically, the S&P 500 has delivered around 10–11% average annual nominal returns over many decades; using 7% here is a conservative, educational assumption. For example, see historical S&P 500 data from Investopedia and OfficialData.org.

Scenario B – Real Estate (Private Value-Add Deal) 🏢:

• One-time $100,000 equity investment into a professionally managed value-add real estate deal (e.g., multifamily or commercial).

• Assumed average annual return: 12% per year (before taxes), reflecting a mix of cash flow, equity build-up, and value creation through improvements and rent growth.

• Hold period: 20 years, with the bulk of taxable events occurring via a future sale, refinances, and distribution of profits.

Real estate returns for institutional-quality properties tracked by indices such as the NCREIF Property Index (NPI) have historically been in the high single digits, with value-add strategies and moderate leverage potentially boosting returns into the low double digits. See CBRE analysis of NPI returns.

Because of depreciation and other deductions, much of the annual cash flow in real estate can be shielded from current income taxes, with more of the tax impact deferred to a later sale. For simplicity, we approximate an effective 10% tax rate on total profits over the 20-year period in this example.

2️⃣ The Numbers: 20-Year Growth Side by Side

In Scenario A (Index Fund), investing $100,000 at 7% for 20 years grows to approximately $386,968 before tax. That is a profit of about $286,968.

If we apply a 15% long-term capital gains tax to that profit, estimated taxes are about $43,045, leaving an after-tax value of roughly $343,923.

In Scenario B (Real Estate), investing $100,000 at 12% for 20 years grows to approximately $964,629 before tax. That is a profit of about $864,629.

Applying an effective 10% tax rate on the profit (reflecting the impact of depreciation and tax deferral in this simplified example) yields an estimated tax bill of about $86,463, for an after-tax value of roughly $878,166.

Under these assumptions, the real estate example ends up with roughly 2.5–3 times the after-tax value of the index fund. That does not mean real estate is always better—it simply shows how leverage, tax advantages, and active value creation can change the long-term outcome.

3️⃣ Visual Comparison: Charts & Graphics

The following charts help visualize how the two strategies behave over a 20-year period.

Chart 1 – Pre-Tax Growth Over 20 Years:

This line chart shows how $100,000 compounds annually at 7% vs 12% over 20 years, before taxes.

Chart 2 – After-Tax Value at Year 20:

This bar chart compares the estimated after-tax ending values for the index fund and the real estate investment after 20 years.

4️⃣ Volatility: How It Feels Along the Way 📉📈

Mathematically, both the index fund and real estate scenarios have attractive long-term numbers in this example. Emotionally, however, the experience of owning them can be very different.

Index Fund (Public Markets):

• Prices update by the second whenever markets are open.

• It is common to see double-digit percentage swings within a year; some years may have 20–40% drawdowns.

• Over long periods, broad stock indices like the S&P 500 have historically rewarded patient investors despite severe short-term volatility. See, for example, McKinsey’s analysis of long-term S&P 500 returns.

Real Estate (Private Markets):

• Values are not marked-to-market on a daily basis; they are typically assessed via appraisals, income, and cap rates over time.

• Cash flow can be relatively stable in well-managed properties, even when asset values fluctuate in the background.

• Institutional benchmarks like the NCREIF Property Index historically show commercial real estate producing meaningful income with moderate volatility compared to stocks. However, private deals also have idiosyncratic risks tied to the specific asset, market, and management team.

5️⃣ Liquidity, Control, and Finding the Right Mix

Beyond the ending dollar amounts, the right choice comes down to your goals, risk tolerance, and time horizon. Some investors prioritize liquidity and simplicity; others value income, tax efficiency, and the ability to influence results through active management.

✅ Index Fund – Pros

• Highly liquid: You can usually sell and have cash in a few days.

• Diversified: One fund can hold hundreds or thousands of companies.

• Simple & passive: No tenants, no toilets, no capital expenditure projects.

• Low friction: Easy to dollar-cost average, auto-invest, and forget.

❌ Index Fund – Cons

• Emotional whiplash: Big swings can cause panic selling.

• Tax drag: If you’re not strictly buy-and-hold, frequent trading or high-dividend funds can create ongoing taxes.

• Limited control: You can’t directly influence performance of the businesses you own.

✅ Real Estate – Pros

• Tax advantages: Depreciation, interest deductions, and the ability to defer taxes (e.g., through refinances or 1031 exchanges) can significantly reduce effective tax rates.

• Tangible asset: You can see it, touch it, improve it, and potentially increase value through decisions, not just hope the market goes up.

• Income focus: Predictable cash flow (when done right) can support lifestyle or reinvestment.

• Potentially higher risk-adjusted returns: Especially in efficient markets or value-add strategies.

❌ Real Estate – Cons

• Illiquidity: Your money can be tied up for 3–10+ years in private deals.

• Manager & execution risk: Returns heavily depend on the operator’s skill, honesty, and systems.

• Complexity: Legal docs, capital calls, business plans, lender risk, construction risk, etc. Watch this short webinar where I discuss the 7 major types of risks in commercial real estate and how we mitigate them at Westworth Capital.

For many investors, the most resilient approach is not choosing one or the other, but building a thoughtful blend, using index funds as a liquid, diversified core and private real estate as a higher-income, tax-efficient satellite allocation.

6️⃣ So… Which One “Wins”?

The “winner” depends on you, not just the spreadsheet.

Ask yourself:

1. What am I optimizing for?

   • Maximum long-term growth?

   • Current income?

   • Tax efficiency?

   • Liquidity and flexibility?

2. How do I behave in a downturn?

   • Do I panic-sell at the first 20% drop?

   • Or can I hold through a full cycle?

3. What mix of both makes sense?

   • For many investors, a blend works well:

     • Index funds as the simple, liquid core

     • Private real estate as the income- and tax-efficient satellite that can boost overall wealth. 

As always, this isn’t personalized advice or a guarantee of returns. But if you’re serious about building long-term wealth, understanding how different vehicles behave over 20+ years is a powerful starting point.

 🙏🏾 Thanks for reading!

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— Dami Fadipe