Menu
Most of us have been told that we should work hard, climb the corporate ladder, and invest in the stock market along the way to maximize our financial growth. This is exactly what I saw countless executives and leaders do in the corporations I consulted with during my career.
But the constant ups and downs of the market don’t always work in favor of these investors.
Consider the tale of Alex, a conscientious parent who, back in 1998, embarked on a mission to secure a solid educational future for his daughter, Emily, by investing in 529 and Education IRA accounts, all in stocks and bonds.
Convinced by the historically averaged 8% returns of the stock market and calculating the prospective cost of college 18 years forward, Alex believed he was laying a sturdy financial foundation. However, the theory of “averages” was soon debunked by the cruel realities of market cycles and unforeseen volatility.
From 2000-2010, a critical period for amassing college funds, the S&P 500 plummeted by 14% due to the Dot-Com bust of 2001-2002 and the Great Financial Crisis of 2008-2009. Meanwhile, college tuition at public universities doubled, and private university tuition surged by 44%.
Alex was cornered into a dilemma: either to deplete retirement savings or saddle Emily with student loans, illustrating how the unpredictable ebb and flow of the stock market can sabotage even the most calculated investment strategies.
This is just one example.
Let’s take a close look at 5 reasons why diversifying out of the stock market and into real estate could benefit your net worth (and your life). Over the years of testing out different investment methods, I kept returning to the wealth-building power of real estate and discovering new reasons why growing my money in the stock market increasingly felt risky.
A Primer on Risk
As with any investment, there’s an element of risk. Just as you could have been hit by a bus this morning, unexpected things come up in life, in the stock market, and in real estate.
The key is not to look for investments that are risk-free (that doesn’t exist), but to understand the risks thoroughly, determine your threshold for risk, and ensure that you’re doing everything you can to mitigate risk.
Investment strategies frequently hinge on balancing risks and rewards, often leading many to explore the sturdy terrains of real estate investment.
While the aspiration for many investors is to achieve a steady 7-10% return from the stock market, reality paints a starkly different picture. For instance, imagine a scenario where an individual, on the verge of retiring, watches their $1.5M portfolio halve overnight due to a market downturn.
Although the market may rebound, the time and psychological impact of such an event can be detrimental to financial goals.
Comparatively, even when the value of real estate investments drops, the underlying income usually sustains or even increases, protecting cash flow and potentially providing a buffer against such financial shocks.
The emotional rollercoaster induced by stock market fluctuations can prompt investors to make impulsive decisions, like selling off during a downturn and re-entering the market too late during recoveries.
Morgan Housel, a respected financial writer, author, and investor, has widely discussed the role of emotions, psychology, and behavior in investing through his work. He notes that “Doing well with money has a little to do with how smart you are and a lot to do with how you behave.”
In contrast, you can’t sell a property overnight. Real estate, with its inability to be traded as swiftly as stocks, imposes a natural barrier against hasty, emotion-driven decisions and behavior. This naturally fosters potentially more stable long-term returns.
Investing in stocks or mutual funds often involves navigating through complex evaluations of companies’ worth, and the investments can sometimes be based on speculative future profits.
This speculative approach contrasts sharply with investing in real estate, a hard, tangible asset that provides intrinsic value and a secure backbone for investments, ensuring they won’t plummet to zero.
While leveraging a stock market investment is rarely a feasible option, real estate invites the possibility of investing using borrowed capital.
Imagine a scenario wherein a bank allows an investor to purchase real estate with just 25% down, holding the property as collateral, an advantage unheard of in stock market investments. The capability to leverage investments in real estate underscores its inherent value and offers a pathway to appreciation and gains through the sale of tangible assets, benefiting all investors involved.
The common trajectory involves investors amassing a predetermined sum in their retirement accounts, which then is carefully rationed throughout their retirement. This model, often rooted in the stock market, embeds risks associated with market timing upon retirement.
Alternatively, an investment in real estate can yield a portfolio of properties generating consistent cash flow, offering a potentially more stable and less stress-inducing retirement income source.
The dichotomy between the stock market and real estate investments is laid bare through various investor narratives. Some accrue wealth via the stock market, while others find success in the brick-and-mortar world of real estate.
Identifying a pathway that aligns with individual goals and risk tolerance is pivotal.
While there is no universally “right” way to invest, diversifying strategies by including real estate can act as a buffer against the whims of stock market volatilities, providing tangible, steady, and often, more predictable returns.
Here at Wise Stream Investments we provide multiple ways to leverage the power of real estate syndications in your investment portfolio so you can take advantage of real estate’s cash flow, equity, appreciation, and tax benefits.
If you’re accredited and looking to deploy capital, we invite you to sign up for our Wise Investor Club to get access to our current or upcoming opportunities.
Sign up for our newsletter to keep new opportunities and essential real estate insights in your radar.
© 2023 Wise Stream Investments. All rights reserved.
