A new study from Fidelity Investment's research arm isn't going to bring a smile to the face of real estate agents trying market oversized mansions as investment property. The Fidelity Research Institute cautions investors about over-relying on home equity to finance their retirement.

Fidelity's researchers don't deny the advantages of home ownership and the magnitude of home equity, citing a 2005 Harvard University study that concluded more than 80 percent of Americans over age 65 own homes worth $3.95 trillion, nearly a third of seniors' wealth. People who own their homes have net worths substantially higher than renters -- no matter what their age, income level or race -- and home equity can create supplemental income for retirees, the study states.

Moreover, building equity by paying down a mortgage makes homeowners more disciplined savers than they might be if they were renters, Fidelity notes.

Those benefits notwithstanding, you shouldn't think of your home as a substitute for a pension, 401(k) plan or IRA because, over long periods of time, residential real estate has generated lower returns than stocks or bonds, the study concludes. Your plans to tap equity by selling your home could particularly come a cropper if your retirement coincides with a real estate swoon like the one currently under way.

"While home equity presents some options for America's retirees, this report ... clearly shows that many investors shouldn't count home equity as a significant retirement funding source," says Guy L. Patton, the institute's executive director.

From the fourth quarter of 1963 through the third quarter of 2006, real estate produced inflation-adjusted compound returns of 1.35 percent vs. 5.95 percent for stocks, the study states.

Even on the hot West Coast, where home prices appreciated the most over the period Fidelity considered, inflation-adjusted returns on residential real estate were 2.49 percent vs. a 2.74 percent return on bonds.

Over every five- and 10-year period between 1963 and 2005, the average annual return on residential real estate has only been slightly better than the return on U.S. Treasury bills and lower than the return on stocks or bonds, the study states.

Residential real estate's returns have implications for those who buy more home than they need in hopes of capitalizing on appreciation.

"House rich, cash poor" investors who pay for a bigger home than they need forgo the richer returns available if they invested the extra mortgage and maintenance expenses in the stock market. Someone who spends $300 a month more than necessary on a home could be forgoing stock markets gains of as much as $114,000 over 20 years, Fidelity estimates.

"Home equity in the form of land, bedrooms or other improvements beyond those a family needs is less an investment choice than a matter of lifestyle," the report states.

A Mt. Lebanon certified financial planner agrees with Fidelity's assessment, saying people would be better off contributing more to the mutual funds in their 401(k) or IRA accounts than buying more house than they need.

"People always overestimate the returns they get on real estate," says Robert Nusbaum, president of Middle America Planning. "You definitely should not be using your home as a piggy bank."

While the benefit of deducting mortgage interest on your tax return is nice, "you don't want to take out a huge mortgage to get that help," Mr. Nusbaum says.

Many retirees are reluctant to tap their home equity, according to Fidelity's survey of people nearing retirement or already retired. Almost 80 percent of the retirees surveyed said they had not leveraged their home equity and don't plan to do it, mostly because they want to spend the rest of their lives where they are comfortable. Only 59 percent of those who haven't retired yet are confident they won't tap their home equity in retirement.

"The best way to tap the equity is to downsize," Mr. Nusbaum says.

Some people are reluctant to pull up stakes and purchase a smaller home in retirement, "but a lot of time they realize it's more house than they want to take care of," he says. Other retirees want to leave the house for their children.

There are two ways to get at home equity without moving: a home equity line of credit or a reverse mortgage. Mr. Nusbaum says he's not a huge fan of reverse mortgages because they can be expensive.

Fidelity evaluates the pros and cons of the three scenarios as well as two others: selling and renting; and renting out an existing home and moving into rental property with a smaller monthly payment. You'll find that analysis, as well as the entire report, at fidelityresearchinstitute.com.

To be sure, Fidelity makes its money selling stocks and bonds, not the charming six-bedroom rambler down the block with the wet bar and hot tub in the finished game room. And there are people who, because they believe all of life's pleasures should not be delayed until retirement, want to enjoy a house that's larger than they need. It's hard to put a value -- present or future -- on that enjoyment.

So don't think of the report as pushing mutual funds over real estate as much as an attempt to make sure home buyers move in with their eyes wide open to the trade-offs they are making.