If you’re like most investment/retirement-minded Americans you have money (possibly both savings and retirement) in a mutual fund. And, as of the writing of this article, your confidence is wavering again (graphic to the right reflects the Dow Jones Industrial last 5 days on 02/09/2018.)
And so once again, like in the past, if you have had your money in one of those funds for any length of time you also know what it is like to wake up one morning and to discover that you’ve lost a huge portion of wealth. But, let’s be honest, over time, it has proven to be a good investment… IF… (1) You can keep your money in for a long period of time in order to withstand the ups and downs of the market, and (2) You have the freedom to pull money out whenever you want… as opposed to whenever you need.
So, maybe it is time to re-consider where you are putting your money. Maybe it’s time to make a side by side comparison of the differences between investing in mutual funds vs. investing in real estate.
In this article I am going to provide: (1) The strongest reasons people invest in mutual funds, (2) What prevents/inhibits people from investing in real estate, (3) A side by side comparison of what it would be like if you had invested $50,000 in mutual funds vs real estate over the past 10 years.
THE STRONGEST REASONS PEOPLE INVEST IN MUTUAL FUNDS:
Generally speaking, people put money into mutual funds for the following reasons:
1 – Over long periods of time, a well established mutual fund will grow in equity.
2 – Mutual funds are (primarily) designed to diversify your investments as a hedge against a specific company or industry taking a huge hit.
3 – Professionals will manage this for you so you don’t have to pay close attention to what is happening with factors such as the economy, specific industries, national and global trends, and other such factors.
4 – You can choose, with relative little knowledge, from a variety types of funds which which to invest.
WHAT PREVENTS/INHIBITS PEOPLE FROM INVESTING IN REAL ESTATE:
Generally speaking, people do not invest in real estate for the following reasons (although if you own a home… you already have).
1 – Real estate investing is perceived as “high risk”.
2 – Real estate investing is also perceived to be hands on, therefore requiring more knowledge, more work, and more hassle.
A SIDE BY SIDE COMPARISON:
A side by side comparison of what it would be like if you had invested $50,000 in mutual funds vs real estate over the past 10 years. (Assuming for buy and hold and therefore, compounding over 10 years.)
For the sake of comparison I picked one of the most popular, low-cost mutual fund from Vanguard, their Total Stock Market Index Fund (VTSMX). My calculations were built on averages over 10 years and assuming median tax brackets, state income taxes, etc.
For the real estate side of the equation, I picked one of our properties in Greeley, CO, and applied average vacancy rates, rent rates, capital expenditures, expenses, etc. Important to note are all the tax advantages with real estate such as depreciation, passive income tax rates, etc. These are all included in the side by side comparison below.
As you can see, real estate investing wins hands down!
Now, imagine if all of this income was generated by OPM (other people’s money), such as with a Home Equity Line of Credit (HELOC).
Maybe it is time to contact us to learn how you can make better returns and more quickly achieve your personal and financial goals!