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ince 2001, the S&P/TSX Composite Index has returned around 7.3 per cent annually, a figure that may not live up to Canadians' expectations of real estate as the most reliable investment. However, when we factor out the leverage effect of mortgages, gold has been the best-performing asset with a cumulative annual growth rate (CAGR) of 10.3 per cent. This surpasses Canadian real estate's returns of between 6 and 8.6 per cent, depending on rental income.

    We analyzed three major asset classes – gold, the TSX NTR Index, and average Canadian homes, both with and without rental income – against the growth of the total money supply (M2). For housing, we modelled scenarios with no rental income, a modest 2 per cent profit, and a 4 per cent profit. Higher rental profits boost investor returns.

    The S&P/TSX Index assumed full dividend reinvestment after withholding tax, while the S&P 500 assumed full dividend reinvestment without withholding tax. Despite headline inflation averaging 2.2 per cent annually, assets like homes, gold, and equities rose significantly faster. This disconnect between CPI and asset prices is due to the fact that CPI measures consumer goods and services, not asset price inflation.

    Asset prices appear to be more closely tied to the growth of the money supply, which has expanded sharply thanks to low interest rates and the Bank of Canada's money printing. As more money enters the economy, it tends to flow into assets, driving prices higher. Gold acts as a store of value due to its scarcity, with global gold mining increasing by only 1 per cent to 2 per cent annually.

    Gold has been the standout investment of the 21st century, outperforming stock markets in both Canada and the U.S., and surpassing Canadian real estate. While Bitcoin delivered even stronger returns, it was excluded from this analysis due to its relatively recent emergence as an asset class. The unique role of leverage in real estate should be considered, as homes can be bought using mortgages, potentially boosting returns on equity.

    Ultimately, if the money supply continues to grow at a compound rate of around 7 per cent annually, asset prices are likely to follow a similar long-term trend – while incomes may lag behind.