Confusion abounds for retirement investors. World economies are on the verge of falling into the abyss. Dark clouds are on the horizon. And, at home in the U.S., the stock market gyrates wildly.
In early October, an incident on Wall Street scared the daylights out of everybody. According to Reuters News Service “in less than one hour the stock market surged by 4 percent — for no apparent reason. It occurred at a speed that frightens many, from experienced hedge-fund managers to mom-and-pop investors, and it’s a big reason many are staying away from the market”.
Using complex algorithms and high speed computers, the Wizards of Wall Street utilize derivative instruments, leveraged strategies, short selling and margin buying to “game” the system and skew it in their favor. Because of these and other complexities, some psychologists have drawn an analogy with “rigged gambling” to the modern day stock market.
As the markets surge one day and fall the next, Wall Streeters advise patience. “Hang in there for the long run. You’ll be glad you did. Everything will be alright. Not to worry.”
These same advisors will tell you that moving your money out of the stock market into real estate is a huge risk. And, of course they would say that because they will lose huge commissions and fees if you move away from them.
But that’s not what recent Self Directed IRA & 401(k) clients are telling us. They are quite forthright about the fact that their stock investing made them no better off now than they were 10 years ago. One client called it the “lost decade of retirement investing”.
To prove the point, here’s the the Dow Jones average beginning with April 5, 1999:
| Apr 5, 1999 | 10,652 |
| Jun. 9, 2006 | 10,891 |
| Oct. 3, 2008 | 10,325 |
| Oct. 1, 2010 | 10,829 |
| Sep. 30, 2011 | 10,913 |
As we illustrated in our last blog, A Dose of Reality: Stocks vs Rental Property, if you had $100,000 invested into an income-producing rental property on Sept. 10, 2010 vs the same amount invested in the stock market, one year later, on Sept. 9, 2011, your gain would be approximately $10,000 more than your stock investments.
But what about the 12 year period above? What would your gains have been if you owned that $100,000 property?
To keep it simple, let’s multiply the $10,000 annual gain (assume no appreciation on the property) over a 12 year period. The total would be $120,000. Let’s then say you invested annual gains into risk-free bonds at a 3% return, compounded annually. That would be another $26,177.90. Or, you could have invested into another income-producing property with an annual ROI of only 5% and it would be another $67,129.83.
So, depending upon how you invested the gains from the $100,000 property, you would have experienced either a $146,177 or $167,129 increase.
(As a side not for all you pundits out there who would say that we forget to factor in vacancy rates or maintenance, we’ll point out that we also didn’t factor in any rental increases over that 12 year period, which will more than offset those issues.)
Bottom Line: Are you going to continue to spin the roulette wheel in the stock market and hope that your number comes up? If you think the “lost decade” had wild swings and huge ups and downs, the next decade is going to be beyond what you could ever imagine.
Get out now while you can. Set up a Self Directed IRA LLC or a Solo 401(k) and get into income-producing real estate that will give you solid returns and peace of mind. If you don’t know how to invest in real estate, we’ll help you find something that suits your risk tolerance and your overall goals.
Contact Safeguard Financial today by calling 877-229-9763, or fill out the form on our website www.ira123.com.
