How Much Real Estate VS Stock Do You Own?

Investor · Tampa, FL · Member since 2010 · 377 posts · 56 votes

Hello all,

Right now, I currently have all real estate assets and no money in stocks. I met with a financial advisor yesterday, who is a trusted friend-of-a-friend, and suggests I put a chunk of money into tax savings retirement plans and invest into stocks. He mentioned a statistic that the "Ultra Rich" ($50M+ net worth) have 60% of their wealth in stocks and 40% is in real estate.

I was hoping to get some feedback from some of the people who have long term experience (or great references) in building a strong portfolio. I like to think I'm doing ok with real estate and hate to deviate from an investment I understand to start participating in a game like stocks where I have zero experience. The other side of the coin is I understand diversification could be a safer play should a collapse of the economy happen again.

Thank you and look forward to your thoughts!

1 Reply

179 views

Most Popular Reply

Paul Allen

Financial Advisor · Virginia Beach, VA · Member since 2017 · 502 posts · 508 votes

@Tony Nguyen I am a financial planner/adviser, and I believe in diversification. You seem like a DIYer (because you're on BP!), so you should head on over to bogleheads.org and do some reading.

What I am saying is that 99% of financial advisers will recommend stocks* because that is what they do. If you're looking for a car and you go to a Toyota dealer they are not going to recommend a Ford. If you go to someone who manages stock portfolios and ask them how you should invest - well...guess what they are going to recommend? And...they will also be able to help you out for a fee.

You don't need to pay someone a fee to manage your portfolio. You might want to (just like some buy and hold REIs use a property manager), but you don't need to. Bogleheads can teach you how to build a diversified securities portfolio that you can manage yourself.

Best of Luck on Your Journey!

*Unless they are actually insurance salesmen masquerading as financial advisers. Then they will try to sell you insurance.

12 Reply

See this reply in the discussion

39 Replies

Jump to latestLatest

Sort by

Paul Allen
Financial Advisor · Virginia Beach, VA · Member since 2017 · 502 posts · 508 votes
9y
@Tony Nguyen I am a financial planner/adviser, and I believe in diversification. You seem like a DIYer (because you're on BP!), so you should head on over to bogleheads.org and do some reading.
What I am saying is that 99% of financial advisers will recommend stocks* because that is what they do. If you're looking for a car and you go to a Toyota dealer they are not going to recommend a Ford. If you go to someone who manages stock portfolios and ask them how you should invest - well...guess what they are going to recommend? And...they will also be able to help you out for a fee.
You don't need to pay someone a fee to manage your portfolio. You might want to (just like some buy and hold REIs use a property manager), but you don't need to. Bogleheads can teach you how to build a diversified securities portfolio that you can manage yourself.
Best of Luck on Your Journey!
*Unless they are actually insurance salesmen masquerading as financial advisers. Then they will try to sell you insurance.
12 Reply
Andrew Johnson
Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
9y
Tony Nguyen I'm about 50/50 in terms of capital invested in real estate vs. stocks/bonds. Equality in real estate grows with mortgage principal and the stock/bond portfolio grows with retirement contributions. You can also use real estate cash-flow to "drip" money into the market over time so one investment feeds another. Any provider (like a Fidelity) will have an age/risk adjusted recommendation that you can get online or in-person. You don't really have to actively manage anything. There are plenty of index funds to choose from since you're (likely) not looking to become a day-trader. If nothing else, look at it as a way to maximize your tax deductions. 401Ks are just another tool to defer taxes.
4 Reply
Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
9y
My investments are spread about 50/50. My specialty is real estate, I have a financial advisor to manage my other investments. He is good and it is not worth my time to learn all the intarsias to do it myself. My financial advisor is the PM for my non real estate investments. I do not believe in holding individual stocks, I am diversified in funds, domestic, international, real estate etc. Retirement funds, tax free funds, income funds etc.
2 Reply
Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
9y
I'm typically around 50/50, but it could be 60/40 at any time depending on what asset has had a recent run up or if I've made a recent purchase in one asset.
[email protected]301-893-4635 Podcast Guest on Show #192
District Invest Group546 Reviews
Website View Page
2 Reply
Dave Younts
Investor · Huntersville, NC · Member since 2017 · 45 posts · 34 votes
9y
Financial Adviser here as well. Personally, I believe that it depends on where you are in your "life cycle" and where your RE business currently stands.
For instance, if you're 25 years old, you most likely won't need to make withdrawals from your investments to support your lifestyle for ~40 years. Therefore, you have a higher risk tolerance because you have more time to recover from recessions. This is called the early accumulation phase. It is very similar to when a new company is spending large amounts on R&D and CapEx. At 31 years old, I am in this phase. I invest on a 1:1 ratio ($1 to my 401k, IRA, brokerage account : $1 to down payments on RE). However, I have about 80% of my net worth in real estate and 20% in equity investments. This is purely because my RE has performed very well.
Late accumulation phase and decumulation phase investors should consider getting advice. This is because a portfolio's Beta is much more significant when you are making withdrawals on a regular basis. You need a very diversified portfolio where one investment balances out the others. This is why you see may investors begin investing a significant portion in bonds at this time. High correlation is a killer in the decumulation phase. Have a professional run a Monte Carlo simulation and you will see how different allocations affect your likelihood of success.
7 Reply
Dave Younts
Investor · Huntersville, NC · Member since 2017 · 45 posts · 34 votes
9y
As an FYI, FAs tend to be pretty handcuffed when it comes to how much advice they can give on outside investments. There are pretty strict rules are "selling away" that many firms have. Of course, if the FA is your buddy, he will give you the best under the table advice he can. However, the firms like Merrill and WF don't want the FAs giving advice on securities that aren't regulated (such as your rental house) because they don't want lawsuits.
1 Reply
Allen Fletcher
Investor · Colorado Springs, CO · Member since 2015 · 252 posts · 131 votes
9y
I started out investing solely in the securities markets so I am 10/90 currently. As most everyone above has stated, it really depends on you what the best asset allocation is. I am very comfortable with stocks, bonds, funds, notes etc. and thus have the majority of my assets there, but I am expanding and have found a great avenue to increase my financial stability, real estate!
Good luck,
Allen Fletcher
0 Reply
Dawn BrenengenBusiness Member
Moderator
Real Estate Broker · Raleigh, NC · Member since 2014 · 2k+ posts · 1k+ votes
9y
We are probably 60/40 favored toward RE. Everything else is invested in tax advantaged accounts.
Podcast Guest on Show #101
2 Reply
Leona N.
Investor · Sask, Sk · Member since 2017 · 85 posts · 25 votes
9y
About 60/40 here too. I hired an advisor to manage our portfolio though. I would like to learn enough to manage it on my own someday. We did get our advisor to run several different retirement scenarios, most only taking a small rental income and no appreciation. It was nice to see the numbers with and without the RE.
0 Reply
Henry J.
Monterey Park, CA · Member since 2014 · 157 posts · 80 votes
9y
@Tony Nguyen
I'm an outlier here since I'm more into stocks. We are not ultra rich ($50+MM) so take that with a grain of salt. :)
I started with stocks / bonds before I bought any SFR so we have lots of S&P / large cap / Vanguard funds through 401K / FA as well as individual stocks (AMZN / AAPL - who can resist those?!).
Our current holding is around 75% stock / 15% RE / 10% cash, not accounting for mortgage balance (% calculated based on RE value - mortgage balance), using personal capital site.
If we don't subtract the mortgage balance then we are about 55% stock / 37% RE / 8% cash. Not sure if this is the right way representing the % though.
Working on to have more mortgage so we have 50% stocks / 50% mortgage balance amount.
Henry
1 Reply
Kevin Favorite
Baltimore, MD · Member since 2017 · 11 posts · 7 votes
9y
My plan is to remain focused on the retirement accounts, HSA, Roth and let things compound there and use what remaining dollars I have towards real estate. May cause me to be a little slower in the real estate development but still totally doable.
0 Reply
Marian Smith
Real Estate Investor · Williamson County, TX · Member since 2011 · 1k+ posts · 961 votes
9y
Stocks, meaning mutual funds whether index or managed, are essential savings holdings IMO. They are liquid, you can set up an autopilot investment program and have historically kept up with inflation at minimum. Warren Buffet recommends the SP500 index. I like Vanguard total market index and world minus US in a smaller %. We have done well in RE mainly due to leveraging over the last 10 years but had we sold stock and paid cash the SP500 would have trounced our RE investments in the same time span...unless we had put the RE cashflow back into the market maybe but I am to lazy to figure that out.
0 Reply
Mike Dymski
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
9y
The ultra rich have (or had) most of their net worth invested in their businesses...and their stock and real estate holdings are where they park the excess capital.
The allocation of your personal capital is the most important financial decision you will make. Well done on thinking it through.
IMO, the amount of diversification you need will be based on (1) knowledge and (2) risk. The more knowledge you have on an asset class, the less diversification you need. The less risk you have in an asset class, the less diversification you need. If you understand an asset class well and can predict the results with a fair degree of certainty, their is a low risk of failure and little need for diversification. I would rather have a handful of investments that I know very well and are predictable than many investments that I do not understand nor can predict their results. I am 44 years old and the older I get and the more knowledge I gain in real estate, the more I allocate my savings to it. My returns are higher and my risk is lower than my other asset classes. The type of real estate and market you invest in matters a lot too...some way more predictable than others. My stock market portfolio got hammered in the recession and my real estate did not skip a beat...rents actually went up. Think in terms of "risk adjusted return" too.
Regarding stock market, I do not understand it well nor can predict it; so, I diversify with a handful of ETFs with a discount brokerage. It is very easy to determine an allocation and tax loss harvest and re-balance every once in a while.
Hope that helps and keep us posted.
6 Reply
Max T.
Investor · Philadelphia, PA · Member since 2015 · 3k+ posts · 3k+ votes
9y
50/40/10 Real estate/ mutual funds and retirement accounts/ liquid cash
2 Reply
Mike Nelson
Investor · Oak Park, IL · Member since 2014 · 307 posts · 150 votes
9y
Good advise here. I did some research on mutual funds and discovered how what I thought was the "nominal" fee managers charge adds up when compounded over years, and that is important to be aware of fees and minimize them when possible. Some folks even recommend index funds because of their low fees and historic returns. Some managers and advisers are excellent, but many are mediocre.
2 Reply
Brian G.
Investor · New York City, NY · Member since 2017 · 29 posts · 19 votes
9y
Another adviser checking in, and what @Dave Younts and @Paul Allen (and most of the other posters on this thread) have said is spot on. There are many variables of your personal situation and future goals that come into play when figuring out "how much of x should I have," but one thing that's pretty universal is that diversification is always a positive. I understand that "going with what you know" is the most comfortable thing for you and, as many have already said, I wouldn't dive into trying to pick stocks and get crazy, since it's something you're not experienced in.
But, having investments in the markets and maximizing retirement account tax benefits could be a big positive. Roth IRAs have great tax advantages for saving for your later life, saving for kids' college, or passing wealth on to heirs (they won't pay taxes on withdrawals from these accounts); if you have a 401k option with an employer match it's important to not leave that money on the table; and you can shield yourself from heavy declines in the real estate market if there is another bust. As Paul said, Vanguard Funds/ETFs (Schwab is making a huge push to offer these, too) that are broad-market investments with low fees could be a great way to go.
2 Reply
Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
9y
As a previous series-7 securities broker and private placement underwriter I have done a complete 180. I used to be so gung-ho about 'the market'!
There just isn't enough control in the paper equities markets for me so I turned to REI in '02. The GRC, 9/11 etc showed me anyone can lose their shirt in the market through no fault of their own. I was even hedging with puts, futures and leveraged ETFs during the bad times.
I'm about 94% RE and 6% securities. It should shift to paper more as I pay off my higher rate and higher hassle RE debt which is taking all my extra capital at this time. That and a huge 'opportunity acquisition' fund. I will reduce the little % of equities I have in the market to marketable at Dow 22k. Cheers!
2 Reply
Tony Nguyen
OP
Investor · Tampa, FL · Member since 2010 · 377 posts · 56 votes
9y
Thank you to everyone who chimed in here. So much information to digest, but from the surface, I will likely stick to Real Estate for a bulk of my investments and ask the financial advisor for assistance with a tax-deferred account.
0 Reply
Account Closed
Investor · Canton, GA · Member since 2015 · 88 posts · 63 votes
9y
I personally don't think you should own any stock. I don't. I'm 100% in real estate and precious metals. Stocks are digital nothing. You can't hold them or store them anywhere but a computer server. If the economy crashes in real estate you can know it will affect your stock portfolio as well because many funds are built off the back of real estate as an underlying component. Also, know that even during the crash in 2008, many investors didn't lose their properties because they invested properly. They didn't over leverage themselves and made sure they had rentals in solid markets. It was mostly the retail buyers/owners that lost their jobs and foreclosed that got hosed.
Overall, I don't think owning stocks is a good idea. It's too much like gambling. Read Peter Schiff and James Richards books. Ron Paul also has some good books outlining what true wealth is and how it differs from our fractional reserve banking system we have today. You want hard assets you can measure, touch, weigh and physically see. That wealth is far greater than a stock based on a company's potential performance.
5 Reply
Paul Allen
Financial Advisor · Virginia Beach, VA · Member since 2017 · 502 posts · 508 votes
9y
Originally posted by @Account Closed:

Stocks are digital nothing. You can't hold them or store them anywhere but a computer server.
Nearly all of my money is 'digital nothing'. $20,000+ goes through my bank account every month, but only about $400 through my wallet as money I physically touch.
Your mileage may vary, but generally speaking a portfolio of only real estate and precious metals will underperform a well-diversified stock/bond portfolio over the life span of most people's portfolio (30+ years). I suspect the BP community does better than average at taking advantage of inefficiencies in the real estate market, but not everyone is as actively engaged with their money. For most people owning stocks makes eminent sense.
1 Reply
Account Closed
Investor · Canton, GA · Member since 2015 · 88 posts · 63 votes
9y
@Paul Allen And as a Libertarian I say all power to you. If that's where you want to put your money then great. I personally don't think it's sound though. The returns I was seeing in the stock market over the past 10 years did nothing for me compared to what real estate is doing. I don't think there is any hard evidence to back up your claim of stocks outperforming real estate and precious metals either. The value of the dollar has sunk tremendously since 1913 when the federal reserve was enacted so your 100% portfolio is based on a house of cards being the US Dollar. Paper is worth nothing compared to precious metals and real estate. The Fed is rampantly printing more and more Dollars every year and having to use QE practices to sustain this mess we're in. I'd rather own something that can retain value better over time like a house and is subject to natural supply and demand of the markets. A government deciding the value of my portfolio is not in my best interests...
1 Reply
Steve Bracero
Real Estate Agent · Westboro, MA · Member since 2016 · 1k+ posts · 471 votes
9y
@Tony Nguyen
I began investing in index funds (3 fund portfolio) thru vanguard right after I turned 22... I put a % of my bi weekly into it and have seen a nice return- So right now I am at 0/100
Now I am about to close on my first deal which will be a house hack... The next question i a considering is do i take what I have in my index funds to put 20% on a second property?
I understand there is not quick or fast answer.. I see a 3 outcomes
1. Stay with ETF's, the refi out of house hack, use FHA again (probably mid-late 2018)
2. Withdraw from ETF's and invest in RE- Look Out of State (Buy by end of 2017)
3. Withdraw from ETF's and invest in RE- In State (Prices High in Mass) (Buy by end of 2017)
My initial answer is to put the $ with the greatest ROI... I am interested to hear anyone who is willing to give advice!
0 Reply
Account Closed
Investor · Canton, GA · Member since 2015 · 88 posts · 63 votes
9y
@Steve Bracero Investing out of state is a great idea. I do it with the right realtors and property managers on my team. I hate ETF's. They were too wobbly for me when I invested. I would pull your money out and invest in some good turn key rentals in stable markets. Remember buy and hold is not about immediate returns. Your ROI will be over the next 5 to 30 years or more so keep that in mind. The stock market likes to disillusion you into thinking you can make massive returns in such a short time frame.
1 Reply
Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
9y
After my first RE deal closes, it'll be about 40 percent RE and 60 percent various stocks and bonds, a ROTH IRA and 401k account. After my second deal closes down the road it'll probably be around 55 percent RE and 45 percent everything else. I'm 22 so keep that in mind and take this with a grain of salt.
0 Reply
JD MartinBusiness Member
Moderator
Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
9y
Much higher in RE than in anything else (stock/mutual funds, cash, pension), but our properties are part of our business so you might say that a good portion of it is in the business rather than in real estate. Depending on the type of RE you own (and where you own it), your RE should serve as both dividend generator and long-term wealth generator (or inflation hedge). If you are accepting dividends in exchange for asset devaluation, you better have a good healthy bank account.
Podcast Guest on Show #243
Skyline Properties
View Page
0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.