Roth ira, 401k vs Real Estate

[Wala Habiby]

Good evening, 

I have been dealing with Real Estate for over 10 years and personally investing for over 5 years. I have grew my portfolio tremendously in the past few years with a $1,000,000 in equity BUT I have been told that I need to invest in other means such as the Roth ira or personal 401k. I really don't understand those investments much but I do know that I pretty much don't have total control in their success or failure, and I truly don't believe in stocks anyway. I see it as a fools bet (no offense). I am just not a gambling kind of guy and I like to see success connected to how much work I put into something (physically and even better, mentally)

Are we just taught that investing in stocks/401K/Roth Ira and similar investments are the way to go and should be part of everyone's portfolio, but maybe for true real estate investors its not needed ? or is it truly important and needed?

I have been struggling with making a decision, as right now I don't see value in it but in comparison,  it took me 5 minute to see true value in Real Estate investing years ago. 

Thank you for sharing. 

[Adam Bosma]

Wala,

Congratulations on your success! You have built an impressive real estate investment portfolio.

Additionally, I commend you for honest questioning of different elements of conventional wisdom and the status quo. Your post has a lot of detail and I hope to help with some of it.

First, I think it is important to define a technical term before use. In this case the word “investing” means different things to different people. Let me be clear, proper investing in the stock market is not gambling!

By proper investing, I mean a well diversified portfolio of low fee and tax optimized investments to meet your personal goals. If you do a little research, you will find that multiple Nobel Prizes have been awarded for the development of modern portfolio theory. At the most basic level investing in securities (stocks or bonds) means you are purchasing a small slice of the future economic returns of that company. In aggregate, investing in a well diversified portfolio means you have upside in the long term growth and prosperity of the entire world economy. On the flip side, academic and empirical research has shown day-trading or playing the market without a definable and repeatable competitive advantage (ie “an edge”) is going to result in long term losses. This type of speculation is more akin to gambling.

Second, investments in public stocks and bonds have different characteristics than real estate and these characteristics might be desirable to your specific situation now or in the future. Examples include: truly passive nature of securities portfolio investing, liquidity and ease of sale, certain tax or employer match advantages (depending on your situation), diversification and reduced correlation with other investments, and gifting/bequeathment considerations.

In conclusion, investing in real estate and the securities markets does not have to be an either/or decision. Both processes have advantages that can make sense. The specific balance and decisions about your investments should be derived from your specific goals and circumstances.

I would like to encourage your curiosity and inquiry on investing. I am happy to help you in any way.

Research recommendations (depends on how technical you want to get): A Random Walk Down Wall Street by Burton Malkiel, Any books by Jack Bogle, the Efficient Market Hypothesis, Modern Portfolio Theory, Portfolio Correlation and benefits of rebalancing.