Any money invested in stocks is "play money" with no guarantees attached to it one way or another, nor is it money that one relies on to pay living expenses at some later point in time
whereas there is some guarantee for money in real estate?
having said that, the common view of "stocks for the long run" on CNBS is insane. there are certainly risks to stocks.
but i think it is naive to assume there are no risks to real estate.
it all comes down to how much you pay for what you get. RE can be a good investment sometimes, whereas stocks can be a good investment other times.
if you look at historical graphs of stocks vs. RE returns, you will notice that sometimes one outperforms the other, and vice-versa.
so i think it is not a bad idea to spread one's money around a bit, with a little in stocks and a little in RE.
I do, however, consider any money invested in paying down a mortgage to be *saving*
it is not saving; it is merely paying down debt. i think a better way of saying this is that paying down debt is a prudent thing to do, because absent bankruptcy, debt does not go away unless you pay it off.
but debt reduction is no savings plan, or there wouldn't be so many zero-debt seniors living on Alpo.
saving is the accumulation of the positive asset, not the elimination of a liability. however, it may be prudent to eliminate liabilities before accumulating assets ("saving").
so one issue to think about is what you do after you eliminate your liabilities. that is when you actually start to save.
right now, the evil Alan Greenspan is trying very hard to hurt the savers of this country by lowering nominal rates on short govt paper to sub-zero real rates. his evil aim is to force people into risk assets, like stocks, in his dimwitted attempt to prop up the bubble.
unfortunately, this will not work due to the very low expected returns on stocks, thanks to their insanely high prices and the accounting lies that are so pervasive in corporate america.
....because some day I'm going to get back some of it, all of it, or more than I ever put into it.
this is hardly a qualification for an investment. you could also invest all your money in JGBs (Japanese Government Bonds) yielding 1% over 10 years, because some day you're going to get back some of it, all of it, or more than you ever put into it. but that does not make it a good investment.
you need to look deeper to find the meaning of good investment. basically, what you are looking for is a level of expected return that justifies or exceeds the risk you are taking.
so when i look at a place like LA, where my cousin's 850 s.f. shack is supposedly worth 500K, i think that the rewards do not justify the risk.
The alternative, which is to rent, would be to throw money down the drain every month, never to be seen again in any way, shape or form.
you are throwing money down the drain if you own something, make no mistake. you throw money down the drain on interest expense, on upkeep, and even on "improvements" when their status changes from luxury extras to must-haves over time thanks to our housing bubble (e.g., air conditioning or granite countertops in certain areas).
what's more, you take on market risk, because you may be the last fool in the door before the elevator heads downtown for the next decade.
whereas if you rent, you can wait for the market to tank, then buy cheap.
if you rented when houses were cheap (when Risk was fairly Rewarded), what you threw away was not money, but the opportunity to acquire an asset cheaply. if you rent when houses are expensive (when Risk is not supported by Reward), and moreover when rents cheapen due to high housing demand and cheap credit, what you throw away is the opportunity to be stuck with an overpriced asset, whose value may never grow in real terms for a very long time.
Real estate also hasn't yet demonstrated (to me, at least) the ability to go to zero, while we've all seen many stocks do so, easily and fast.
RE as an asset may not go to zero, but leveraged buyers, which is basically 99% of the market, can certainly see their equity interest go to zero or below. a 20-30% downside move in RE can devastate leveraged holders. |
