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You're forgetting one major thing though......without a crystal ball putting that amount of money (or any amount of money) in the market is out & out pure gambling......and, a house is something tangible and something that has use (i.e.; can be lived in, house you & your family, shelter from the elements) - even if you don't realize a big ROI when you sell or even if the real estate market takes a dump you still have something real you can live in and bide your time until an upswing.....I don't think Goldman Sachs would offer to let someone camp out in their offices when they lost a bundle in the market and were awaiting a bull run to recover their losses.
You're also forgetting that many don't have the nerve or temperament to leave that investment rolling over & over in the market for 30 years esp. with years in there like 1987, 2001 & 2008, etc......many would have cut and run to get out with what they could & move to cash, into very conservative portfolios or bonds and not realizing the high return you state.
a rental property may be useless to you depending what it is for anything other then an investment .
as i mentioned above all our time frames can and will be different .
but pretty consistently over time markets have beat home appreciation but that is only true if it is the home you live in . the returns are different when it is an investment property . my investment real estate did a lot better then my portfolio which did a lot better then the home i lived in .
After years of careful study, investing, trading and doing just about everything, I've concluded:
The stock market isn't for the masses. It's for the ultra high net worth multi-generational wealth families. Basically, people so rich that they don't have to touch large portions of their wealth, for decades, even generations. It helps these people tremendously to preserve and grow their wealth. But the stock market is a lousy savings vehicle for the masses who might actually need to access their money at a moments notice.
If you're not ultra-high net worth, chances are a portion of your retirement savings or savings you might need to access are in stocks. Unless you have extreme patience, discipline and luck, chances are you might need to get at that money when the markets are down. Life happens.
If you're worth less than $10 million, stick with real estate. Atleast you can live in it while you build equity, or rent it out. Far more people do far better in real estate than stocks.
If you have more than $10 million, stocks are a decent option because you can comfortably not touch large portions of your wealth. Real estate is also a good option, but it's at the level of net worth something more liquid is often desired.
But don't go putting half in stocks. Maybe 1/10th of your net worth. Or 1/5. Something VERY comfortable. And sit on it for a long time. Markets go down 50%? No problem. Simply invest more, and when they recover you'll be richer than ever. While everyone else has gotten poorer (the masses who actually need to use their money).
Discuss.
Actually if you go back in time to when real estate records were first kept regularly around 200-300 years ago in America you will find that inflation adjusted real estate has a zero return on investment. It is a hedge against inflation.
Take average price of a home in 1950, 1960, 1970 you name it and buy the same exact cost of the DJIA, S&P and reinvest dividends and the difference is millions
You're forgetting one major thing though......without a crystal ball putting that amount of money (or any amount of money) in the market is out & out pure gambling......and, a house is something tangible and something that has use (i.e.; can be lived in, house you & your family, shelter from the elements) - even if you don't realize a big ROI when you sell or even if the real estate market takes a dump you still have something real you can live in and bide your time until an upswing.....I don't think Goldman Sachs would offer to let someone camp out in their offices when they lost a bundle in the market and were awaiting a bull run to recover their losses.
You're also forgetting that many don't have the nerve or temperament to leave that investment rolling over & over in the market for 30 years esp. with years in there like 1987, 2001 & 2008, etc......many would have cut and run to get out with what they could & move to cash, into very conservative portfolios or bonds and not realizing the high return you state.
Actually a home purchase is much more risky. 100% of your profit is pretty much decided the day you buy your house. Buy at peak of bubble you are screwed. Buy at bottom of RE Cycle rich. Plus you buy it heavily leveraged on margin.
Instead lets say instead of buying a house with a $2,000 a month mortgage you do $2,000 a month in a good stock fund. Does not matter if it is March 10, 2000 all time peak. You are only committing to $2,000 and will dollar cost average in.
However lets say you did a condo in Vegas at the peak of bubble in 2007 with a $2,000 mortgage. Well you were all in on day one at that price.
For some reason, people don't realize that if it looks like there's going to be a correction by looking at the lagging indicators, your brokerage account allows you to jump out of the equities market and park your money in a Money Market fund.
Most people don't do it because it pays zero percent but at least you're not going backwards in your earnings.
When the leading indicators start to look like they are going in a positive direction, you just transfer out and go back into stocks.
This will allow you to tolerate the large percentage fluctuations that the bull/bear cycles create
Quote: "An economic indicator is a statistic about an economic activity. Economic indicators allow analysis of economic performance and predictions of future performance. Economic indicators can be classified into three categories according to their usual timing in relation to the business cycle: leading indicators, lagging indicators, and coincident indicators."
Actually a home purchase is much more risky. 100% of your profit is pretty much decided the day you buy your house. Buy at peak of bubble you are screwed. Buy at bottom of RE Cycle rich. Plus you buy it heavily leveraged on margin.
Instead lets say instead of buying a house with a $2,000 a month mortgage you do $2,000 a month in a good stock fund. Does not matter if it is March 10, 2000 all time peak. You are only committing to $2,000 and will dollar cost average in.
However lets say you did a condo in Vegas at the peak of bubble in 2007 with a $2,000 mortgage. Well you were all in on day one at that price.
I disagree, stock market is far riskier than real estate. Donald Trump is the best example of what a dumb person with money can achieve in real estate despite how many banckruptcies the guy has. If he was actually good at it he would be far richer. The thought of eliot spitzer becoming a great stock picker is laughable but he can at least inherit his father real estate business and manage it well. Money and connections go a long way.
Many people borrowed money so they wouldn't have all their money tied up to the property. In addition after the financial crisis, housing was undervalued by over 30% in many areas. With people losing their house there has been a substantial increase in rental demand. There is a reason why blackstone (a private equity firm) became the biggest private landlord in America. With 2% rental increase every year many people have had higher expenses compared to someone who owns property and has easier access to cheap capital (low interest rate).
There is money to be made in stocks and also in houses. Houses are a lot bigger pain, though, and there are substantial risks. Many people think that houses are safer, but I tend to disagree. They are are an illiquid investment that is not diversified (for small investors) and one generally needs to use a lot of leverage to make the numbers "pencil out".
Corporations never call in the middle of the night to report water coming in through the ceiling. I never need to send them money so they can fix their factories/computers/offices/etc. I can make a very nice return without using leverage. My stock account will never go negative (I don't use margin). If I need money for other things I can sell a few shares, instead of going to the bank and asking for yet another loan.
Stocks are much easier than owning houses. I've owned rentals in the past, and they are a PITA. I've made way more money in stocks, with less stress. Many folks see it the other way. Different strokes for different folks. Don't kid yourself, though... there are risks in both.
I disagree, stock market is far riskier than real estate. Donald Trump is the best example of what a dumb person with money can achieve in real estate despite how many banckruptcies the guy has. If he was actually good at it he would be far richer. The thought of eliot spitzer becoming a great stock picker is laughable but he can at least inherit his father real estate business and manage it well. Money and connections go a long way.
except he has bankruptcy's from his real estate all over the place .
Not everyone is trying to compete against real estate developers and everyone has different risk appetite. I consider myself more of a value investor with a longer time horizon compared to someone looking to flip real estate properties (so I am not directly competing against them). Real estate is very versatile asset being as I get to both consume it and extract money from it (multi-family property). In addition I am able to push my edge with leverage (loan) that normally wouldn't be available to me if I strictly invested in stock market. The property I bought appreciated in value, rent roll increase, and I am able to live in the property (claim tax deductions instead of paying rent). From a psychology standpoint it far easier to take a 5% decline in property value than stock portfolio.
I prefer a mouse-click to everything that goes with real estate investing. But each to his own. Oh, and not that I do it but you don't think you can leverage your equity investments. You can many times over.
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