Investment Allocations... What do you do?

Question

On this forum it’s obvious that most are either investing, or want to invest, in real estate. But I often wonder, of those who invest, how many are still pumping money into Roth’s, 401k’s, and the like? I wrestle with this constantly as I save to buy our first 4-plex. Stay diversified or go all in? Believe in the stock market, or believe whole heartedly in real estate? What say you?

Chris Thomas · Answer

Yeah I think it also depends on whether or not you’re simply investing in real estate as a part of a portfolio for retirement or if you actually want this to become your livelihood. Now most people are going to keep other investments in the mix but for the people trying to invest in real estate for the purpose of owning their own life, I can see a much larger segregation of cash into that bucket. I think that’s what gets me. I love building, have a background in design, and want to eventually own/develop as much property as I can. At this early stage though, feet get a little cold, the “what if’s” rear their heads, etc. It’s probably not until you look up and realize you’ve purchased 200units that you really know you’re headed in the right direction.

Janelle Groenhout · Answer

My husband and I have a goal to make REI support us in our retirement but still choose to spread things out a little just as a backup. My husband is a six figure W-2 earner and this is how he spreads it out; He use to max his 401K yearly but after starting our REI journey he now only contributes 7% into it each year which takes advantage of the company match and helps with taxes. He contributes 2% into our HSA as we plan to have a big family and know how costly children are. He has an Indexed Universal Life insurance plan that he contributes 20% of his income into for the first five years and then the premium drops to about 5% of his income. I work for now until we start our family and I contribute 15% into my 401K to take advantage of the company match and then the rest of my income goes straight into a savings account that we use for REI. I also have rolled all my past employers 401K plans into an IRA with my financial advisor and he invests those funds in Stocks, Commodities and the sorts.  I think you will find R/E investors all do things differently so you need to do what makes the most sense for you and whatt you want for your future. Best of luck to you!

Chris Thomas · Answer

@Ashish Acharya

True but for many here, I assume real estate is probably their retirement plan over the markets... and unless they have unlimited resources, they may be investing in only one of these paths. ConsIderIng the avg Income In amerIca Is 50k, It gets tough for many to max out retitement accounts AND Invest In real estate. I’d just love to know how many are putting all their eggs in the real estate basket.🤔

Trevor Ewen · Answer

@Chris Thomas

Allocation should be defined by your goals, but few investors would recommendation no diversification whatsoever.

Tax shelters are good and should be utilized more often, simple enough. Index funds have the advantage of much higher liquidity than real estate projects. Your goals will define your allocation, but I would recommend being careful if you get to the point of "I have to put all my money in X" When that class is down, it's hard to ride through the cycle.

Mark S. · Answer

Some good and some incorrect advice on here (Roth IRA CONTRIBUTIONS [and only contributions, NOT earnings] are accessible any time tax and penalty free (no 5 year “waiting period.”

Great forum thread.  I contribute up to the point of the company match, then stack cash to invest in new properties to meet my annual acquisition goal, then towards the end of the year, I’ll bump my contributions to 50% to make sure I max out the employer-sponsored plan. for the year.  Each year, I make a prior year non-deductible IRA contribution and then convert to a Roth IRA - i.e., backdoor Roth.   Be careful here due to IRA aggregation rules.  If you need to do a backdoor Roth IRA due to income limitations, be sure you understand, or your professional you’re working with understands, the IRA aggregation rules as they relate to conversions.  I also do some syndications, note funds, etc.

Short answer is that I like doing both.  Real estate for cash flow now (and big cash flow later) - phase 1 of my “early retirement” plan.  Retirement plans and stock market investments for phase 2 when I reach “traditional retirement age.”

As far as allocations, I remain all equities in my market-based investments because I view my real estate investments as the more “conservative” portion of my overall portfolio.  Kind of like bonds, but SO MUCH better with many more advantages.

Jonathan R. · Answer

Pssst, the dollar is fake people. It‘s a system built on money printing and debt. If you are in your early forties, thirties, or twenties, I think you are nuts to put a decent portion of your wealth in the stock market (Certainly at all time highs). You have no control of your money.

Hard assets. Real estate, precious metals, perhaps even a bit of cryptocurrency if you are feeling froggy. Businesses you start or buy. I do do a 401k but only to get the match, nothing more, and I use the plan to fund more real estate purchases. I can grow that money faster and safer by actually owning physical structures (real estate) with true value.

I get that the old stock market was once the holy grail for previous generations to retire, but it won’t work for us. Just my .02.

Brian G. · Answer

@Chris Thomas VTSAX is in essence investing in the entire stock market. Set it and forget it. Nothing beats mutual fund investing imo when investing in the stock market for diversity/ease. BTW, you might want to research a SDIRA which allows one to also invest in other alternative investments like lending, holding notes, etc.

Chris Thomas · Answer

@Brian Gerlach

I have not tried that one yet. My two vanguard staples have been vfinx and vht. Both have performed relatively well only bested by my scant amount of Apple stock I think :-)

Brian G. · Answer

@Chris Thomas hard to beat a VTSAX Vanguard Total Stock Market Index Fund as a passive investment vehicle in the stock market which takes ZERO time and effort to invest in. Some may have much better investing vehicles (ie RE) but at some point tax efficiency demands that one at least consider the possibility of a retirement account to lower your taxable income unless you like giving as much money as possible to the government in the form of taxes. I'm a fan of both mutual fund investing AND RE investing.

Chris Thomas · Answer

Well everyone whose responded obviously has a different method. For me, there has to be a balance of life, retirement, and business building. My wife will sacrifice for success, but she will not live like a pauper. She’s done it somewhat before and wasn’t a fan. So that’s going to give me a fixed amount to use once I factor in living expenses (practically no debt) and “spending money”. That should have us saving roughly 50% of our income. And yes I will continue to invest in the traditional accounts but will shift a few more resources toward REI. I have around 10yrs before my kids graduate from high school. At that point I’d love to have a RE business established that they can jump into, and by the time I retire I’d love to have 500+ units to carry us through our golden years which they can completely take over and grow even more when we are gone. I think one of my biggest goals is for my children to have to spend limited time as an employee. I never want their earning potential/futures in the hands of others like 99% of ours are.

Investment Allocations... What do you do?

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