Stocks vs. Real Estate

Let’s compare real estate with a common and widely known investment commodity: stocks. Many of us think that stock investing is the way to go to grow our money quickly and relatively safely.

And that's exactly what Wall Street wants us to believe. For the last three decades, we've been told stocks are the investment vehicles of choice, and you’re better off investing for the long-term and leaving the money management to the professionals. It’s so complex in fact, that it requires fund managers, account managers, stock experts, and analysts. This is the theory that they’d like us all to buy into.

Wall Street “experts” tell us we need a diverse portfolio with a variety of stock investments to yield the best return. Sound familiar? If it is, you’re one of over 50 million households in the U.S. who are invested in the traditional investment market (ICI.org, 2015). Like you, these hardworking people have been convinced that this is the path to a secure financial future and the ability to retire comfortably.

This traditional path is a myth. A myth perpetuated by an industry that controls over $30 trillion (pre-COVID) in retirement assets and funds - 89% of which are owned by households just like yours. They have created so much mystery on how they manage this huge pool of money that you ultimately have no control over the actual performance of your own investments.

Real stock market returns may actually surprise you.

The average stock market return from 2005 to 2019 (15 years)  was 7.04%.  This means if you invested $100,000 in 2004 it would be worth $277,454 in 2019.

That sounds pretty decent, right? 

Except that’s not actually what happened….

Market volatility can crush your returns!

$100K invested in 2004 for 15 years, if you plugged in each year's actual return (as opposed to taking the average, see diagram), you would have ended up with $225,425 based on the actual annual returns (AAR) of the S&P 500. So the true AAR is 5.6% which is significantly less than 7.04%.

Wait there is more bad news. Don’t forget the management fees…

The average expense ratio for actively managed mutual funds is between 0.5% to 1.0% and can go as high as 2.5% or even higher. For passive index funds (ETFs), the typical ratio is about 0.2%.

Most investors have a blended portfolio of EFTs and mutual funds so let’s assume that the average fee is 1.0% per year.

Adding 1% fee annually, your return of $225,425 has now shrunk to $193,879.

So your return is no longer 5.6%. It’s actually 4.5%!

Hold up, let’s not forget TAXES!

If you are filing jointly and making more than $77,201, your long term capital gain rate is 15%.

If you sold your entire portfolio, the taxes you would’ve had to pay would push your average annual return from 4.5% to 4.0%.

INFLATION - The Silent Killer

According to the Federal Reserve's website, the annual inflation target is 2%. The Fed has done a great job in surpassing this target in achieving an actual inflation rate of 1.6% over the past 10 years.

Compounded over 15 years, an inflation rate of 1.6% reduces your return further from 4.0% to 2.5%.

Wow.

See why most of us who are following the traditional wealth strategies that we thought were a good investment, never achieves true financial freedom. Yet day after day, we are taught to grow our wealth in this old-fashioned way.

So what’s the alternative options, you ask?

What if we tell you that there is a much better alternative to the unpredictable stock market with less risk and volatility AND, most importantly, with much better average returns?

The BEST INVESTMENT on the planet

In our opinion, passively investing in real estate syndications is the best type of investment you can make, specifically in multifamily, self storage and mobile-home parks.

Low Risk

One of the greatest advantages of investing in these three categories lies in its extremely low-risk profile. For decades these categories have proven much less volatile than single home residential real estate, retail and office real estate, the stock market and cryptocurrency.

When the housing bubble bursted in 2008, the delinquency rates on Freddie Mac single-family loans soared, hitting 4% in 2010. By contrast, delinquency on multifamily loans peaked at 1/10 at 0.4%.

Higher Returns

As we’ve seen the average stock market return over the 15-year period was 7.04%, but in real life after fees and inflation, the return is close to 2.5%.

On the other hand, multifamily and self storage syndications routinely return average annual returns of 10% and above. That’s compounded and after fees and inflation.

But that’s not all!

There are also other ways that Real Estate investing has UNFAIR advantages over traditional investment methods.

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