I will freely admit that I was once a stock market junkie.
There. I said it.
At one time, I was a 100% believer in the power of the equities and options markets to build wealth for myself and my family.
It all started when my son was born. I’ve always been aspirational and relatively successful at what I’d set out to do. But there was a fundamental flaw in that I chose to get good at something that wasn’t ultimately scalable.
First, I got good at being an employee and trading time for money in the consulting industry.
Second, I got good at owning and operating my own consulting company. Again, trading time for money.
When my first son was born though, I felt it. I was short on time and flexibility. What if I wanted to coach my son’s soccer team or pick him up from school early or drive to the beach over the summer on a whim… In the “trading time for money” business, it’s hard. It’s hard because you have to make tradeoffs. You’ll think, “If I take off this time now to go to the beach, I’ll have to make it up later some other time…” or other forms of mental calculus.
I didn’t want it that way. I wanted passive income.
My first stop on that journey was the stock, options, and commodities markets.
Some months it went well. Others not so well. At the end of the year I would look at my statements. Some years up. Some years down. Nothing tremendous. Nothing I could really depend on.
Making a living trading and investing in the market is difficult. Just look at the current stock investing environment:
- Less than 10% of all money managers actually beat the market in any given year.
- Of those money managers that beat the market for one or two years, they are much more likely to have a bad year the next year…sometimes really bad.
- Buy and hold is dead.
- More and more of the market is controlled by institutions, hedge funds, and electronic trading programs. As individual traders, it’s impossible to actually get an edge.
- Markets move farther and faster – up and down – then they ever have…just look at yesterday..
- The list goes on.
Ultimately I decided the markets weren’t for me.
My business partner has a great saying about the stock market…
“I hear it’s a good investment but my account balance only goes up when I put more money in.”
So, I moved into real estate and that has made all the difference in the world.
Every negative that existed in the trading world doesn’t exist in the cash flow real estate world. There’s a reason why real estate is the greatest wealth builder…
- I get to invest in tangible non-volatile assets.
- Real Estate has up and down trends but they last for much longer and are far easier to see coming.
- Performing assets can never go down to zero like Bear Stearns or Lehman or Enron.
- I experience monthly cash flow, appreciation, and tax benefits. In the stock market only capital gains or losses…
- My tenants pay down my principal.
- I have control over the asset. I’ll never have a 1000 point intraday drop.
- The list goes on.
When I was in the market, days like yesterday would have really thrown me for a loop. Now, I just feel for those investors that haven’t yet found a way to experience the benefits of real estate.
I hope yesterday didn’t affect you. But if it did, maybe now’s the time to look into stable cash producing real estate investments.
To your wealth, Chad.
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{ 8 comments… read them below or add one }
Chad, Thanks for sharing your thoughts..I totally agree…at least with real estate it will correct itself with time and patience. Best Always,Greta
Exactly. If you buy in markets that are too volatile or just too expensive, you can still lose in real estate. But cash producing assets in stable markets are self-healing and quite safe.
Thanks for the comment.
What I find interesting is that the drop may have been precipitated by a mistaken computer entry. Add to that the crippling financial problems in Greece with Portugal and Great Britain not far behind … the world economy has many risk factors teetering on the edge.
Real Estate is a hard asset with real value in any economy. It’s income producing. People will always need a place to live and a place do business. Personally held Real Estate is something you can see and trust. Something you have control of … something you can reliably build passive income for your future with.
Contrast that to stock. 5 years ago you might have had 100K in Washington Mutual stock. Pretty safe bet, right? What’s it worth today? zero
In uncertain times, Real Estate can be your safest haven.
And even with the mistake it kept going down the next day…that’s the part I don’t like about the market. The market can move out from underneath you in an instant.
Real Estate never moves that fast. You can trust the trends a lot better.
Markets are an exercise in the collective consciousness. Whatever the masses believe, the market responds to and performs. Belief in the market going up? Then buy! Result? Market goes up. Fear that the market’s going down? Then sell. Result? Market goes down. Of course, that leads to unpredictable volatility.
Unfortunately, real estate values while slower to respond are not immune to volatility. Industry changes? Jobs disappearing, people leaving the area? Real estate values go down. Just look at Detroit over the past 50 years.
All investments require ongoing monitoring and timely adjustment – nothing is accomplished without effort of some sort. So from my perspective, there are no simple answers. We just do the best we can in any given circumstances and move on.
If there is a roof over our heads, foods in our stomachs, and peace in our hearts, we are rich beyond what most of the rest of the world experiences. And no matter whatever else I receive in life, I will always be grateful for what I have.
Thank you for providing me with an opportunity to remember that today.
Chad,
The 1,000 point drop was actually somewhat amusing… only because I felt the market, though I want it stable and growing, was growing a bit faster than I thought would be stable.
That said, I’ve learned my lesson about a decade ago – and my dad warned me against gambling – when I lost more than half of my portfolio during the crash in the 80s, then in the 90s, and a little more post-Y2K. I’m a slow learner, I guess, and didn’t pull my portfolio money out in time. BIG lesson learned: no one else will watch your money better than you!
My financial planner took his 2% right upfront, and never looked back, while he played with my money and bought stocks that went against my money rules (over $50 / share), and tanked the next year.
As for real estate, I agree with Kathy, that it, too, has it’s ups and downs, but they aren’t as volatile as the stock market. I tell my clients that I worry about investing in someplace that measures it’s progress every 10-15 minutes as the stock market does. Residential RE markets react more along the lines with the stock market, though it has a lag period and may not be as up or down, even after a crash. Commercial RE markets have an even longer lag period and more dampened reaction in reflecting the stock market trends. So, eventually, all markets are affected, just in different ways and periods.
I feel the market drop and the fact it hasn’t recovered back to pre-drop just means there’s a correction factor even now – and a good wake up call to those investing blithely in the stock market.
I agree with that. Real Estate does have its ups and downs as well. As I see it though, it’s much more predictable and far less subject to the whims of public folly.
Detroit, as Kathy mentioned above, is a perfect example. Yes, Detroit has declined in value dramatically over the past 40 years, but the reasons have been slow moving and clear for everyone to see. One metric: The population has dropped from 2 million down to around 800K. That’s left a tremendous imbalance between the supply of houses and the demand for them. The same is true of commercial property in that city as well.
Compare that obvious, predictable and slow moving trend with something like Enron’s week long plunge into oblivion and I think most people would agree; there are a lot of unknowable factors deciding the stock investor’s fate.
Clearly, investing in Real Estate is not risk free. That’s why you either invest in your own backyard on your own (within 30 minutes of your home) or you engage the support of experts who know the more distant area you choose like the back of their hand.
The way I see it, the odds of your own backyard being the best place in the whole country to invest … are slim.
I tell my co-workers the same thing. I could go on for a long time, but I will limit it to 3 points:
1) So you buy GE stock, do you know what they are doing on a day to day basis and what their plans are for the next 5 years? Most investors don’t even read the annual reports. So really it is just a gamble.
2) Very, very few stocks do not move with the market, so your really investing in investor emotion.
3) Look up the percentage of 401k accounts that actually make it to retirement age. I have seen quotes that 90% are withdrawn early at a 10% penalty, though I admittedly cannot find a reliable statistic on this number.
The 1000 point drop did not affect me at all, I own rentals.