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Updated over 12 years ago, 06/05/2012
Real estate, stock market, both?
Just curious how many people here have given up on the stock market as it relates to their retirement plans?
Given the lackluster performance of the S&P / Dow / Nasdaq over the past ten years does it even make sense to continue pumping money into these investments? I have lost faith that this money will even accumulate at 5% over the long term but can’t seem to bring myself to move away from putting an annual amount in so I feel semi diversified.
I rarely hear mention to the stock market on this forum so I'm wondering how many people are "all in" with real estate whether it's rentals, notes, HML, etc?
Personally I don't have anything in the stock market and no desire to put anything in.
I think a great basic rule to live by is "invest in what you understand." That being said, I only have money in business, real estate, and loans.
I would suggest that you stay away from stocks. The market is very soft and is largely held up by government intervention and hedge fund black boxes.
If you invest in stocks, what I suggest is to follow modern portfolio theory and use ETFs to compose the portfolio. It does not always work but overall it is the best "strategy" we have now. Within modern portfolio theory there are different levels of aggressiveness. Its one of those things that when you are young and have supposedly higher levels of risk tolerance, you can increase your exposure to stocks, considered more risky, than bonds. Often the allocation of a portfolio is 70/30.
I would suggest ETFs because the market is so correlated that there are very few sectors and stocks that act out of step with the overall market. Fact of the matter is, macro factors are such a large consideration that unless there are very specific companies (like Apple) that can outperform markets, ETFs are very good way to gain exposure to a variety of asset classes.
I have a little piggy bank from my old job that is like my "if I were homeless" fund. I have asked my financial advisor to put it in the most conservative profile. The portfolio consists of mostly bonds. I will admit that they thought I was crazy and about 2 months ago was laughed at in their office (because I am 30 and my those in my age are recommended to take on the most aggressive profile). Never the less the way the market has acted in the last few weeks I do feel smart today. My portfolio consisting of mostly bonds has performed YTD better than the aggressive stock portfolio.
Check out Modern Portfolio Theory its not perfect but I think its probably the best system one has of managing a general portfolio.
To complement my MPT portfolio, I have a small retail trading account that I like to trade forex and futures and after months of frustration I have been repaid by my S&P shorts! cha ching!
My limited experience in stocks , for long term investing (not trading) .
Learn,[ dont need/use a financial advisor(if needed use fee only)] ---> save
Assess your risk tolerance --> Decide asset allocation(know your tax brackets, know where to place bonds/international funds/us stock etc) --> make portfolio of index funds - -> dont listen to the noise(CNBC, etc) --> Rebalance.
Both....
Just my personal strategy to diversify.
Definitely both. If I had invested equal amounts in real estate and stocks here in Phoenix (probably anywhere) 5 years ago I would be much happier with my stock investments right now. Quality blue chip stocks are yielding north of 4% and stocks are extremely liquid.
Like any investment opportunity, it pays to bet against the herd. There were serious posts here on BP 4 years ago when the Dow was flirting with 6k that predicted the stock market would go to zero! For those of us who continued to invest and dollar cost average we were rewarded handsomely.
Likewise, anyone who invested in a foreclosure in the past two years has been or will be very happy with their investment 5-10 years from now.
Just my two cents.
Prefer real estate so do not put funds into stocks, bonds or mutual funds. Financial planners will recommend selling all real estate and putting it into the market as they get a commission for that and perhaps a management fee on the side.
5 years ago I was about 80% stocks, 10% cash, and 10% real estate. Now I am about 5% stocks, 20% cash, and 75% real estate. I expect to continue to have modest exposure in stocks, but also that REI will be the mainstay the rest of my days. I also have a small business not included in the break down above.
I would also say both - Diversification is always a good thing considering today's market volatility.
I'm currently only investing in stocks via my employer's 401k match, and taking my additional disposable income as savings toward real estate.
On the other hand, if you feel like only one option is available to you, then I would choose the investment you feel more comfortable with, at least until you familiarize yourself with both markets!
Interesting responses so far. Certainly seems like i'm not alone in lack of market trust, but diversification seems like a necessary evil even when the asset class used ( financial markets ) for that purpose appears to have a significantly higher level of risk.
Loc R. Wise words.
Jon K. I'd imagine over the next few years i'll follow a similar trajectory to yours with my asset allocation. It's eye opening to see just how much easier it is to generate say $20k a month at retirement age through rentals vs how much you'd have to invest on an annual basis in the financial markets.
OK I'll chime in on this topic. I too feel I am over weighted in stocks and that the market overall has done poorly over the last decade (hence my interest in alternative investments). That being said, one can do well by investing in certain companies that are easy to understand, dividend payors, are market leaders and consistently grow earnings. These tend to be boring companies that don't get alot of hype. My favorites are the cigarette companies. You can always count on cigarettes and booze to be in high demand. I have a non-IRA account focused on these types of stocks.
Originally posted by Pat Lowry:
Reminds me of the old Vice Fund (VICEX) from my stock days...
Yes. I have a funny story to tell about this vice businesses. I was once helping someone purchase a liquor store and check cashing business. We went in for a visit on a day the market happened to be tanking and the place was packed! The owner said aside from the normal holiday traffic, the highest volume days were during major stock market declines. I guess people like to drown their sorrows during such times. Maybe it's best to buy these stocks when the market tanks.
Originally posted by Pat Lowry:
Sounds like its best to buy those stocks when the market is good and sell when the rest of the market tanks!
Sorry for confusion. I was trying to illustrate that some companies do well regardless of external financial crisis, panic, European debt issues, etc. Many times public stock prices go way lower than underlying business value, which is a good time to buy IMHO. The cigarette companies tend to retain their value over time, so buying on these dips can be a good strategy.
Originally posted by Pat Lowry:
Pat Lowry, that was just a little attempt at humor...I knew what you meant :)
The only stock I would buy is "O" (since I understand completely what it is they do), but only if they had a DRIP plan, which they don't.
Sounds like you should buy stocks, and a liquor store with the land. If everything goes in the tank, whiskey can make for some good trading as it always has value, and you could have one he.. of a party.
Own very little stock relative to RE.