Why Stocks are Less than Ideal

By: Mark Frentz
www.akerahomes.com
mfrentz@akerahomes.com

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False evidence appearing real

What are the few ways to make money in the stock market? Well, the tried and true method spoken of by so many 'gurus' is to buy and hold for a long time. While there are other ways to make money in stocks I will focus on what most people talk about and show why this simply doesn't help the average person with investment growth.

With the recent all time high of the market last week (just under 17,000) my interest was aroused at what the true value of 17,000 really is. I took a look at the market peak at the very start of the century and then followed the numbers (both highs and lows) to discover just how much the market really has come. There's a catch here, though. What I did to find the true value of the market was to adjust the numbers for an average inflation rate of 3%. Here is what I found the numbers would be on a yearly basis using a 3% appreciation rate.

2000 - 11,722.98 (historically highest high of the market)
2001 - 12,074.67
2002 - 12,436.91 (40% drop in the market this year)
2003 - 12,810.02
2004 - 13,194.32
2005 - 13,590.15
2006 - 13,997.85
2007 - 14,417.79 (market hit high of 14,164.53)
2008 - 14,850.32
2009 - 15,295.83 (54% drop in market)
2010 - 15,754.70
2011 - 16,227.35
2012 - 16,714.17
2013 - 17,215.59
2014 - 17,732.06 (market, just last week, hit all time intra-day high of 16,970.17 (June 9))

By looking at these numbers it is easy to see that the market has not even matched a 3% inflation rate over the last 14 years! Isn't this crazy? The second reason this is crazy is that there typically are huge dips in the market every 5-7 years. The market dropped by 40% by 2002 from the previous high and then by an astronomical 54% by 2009 from the 2007 high. What this screams to me is RISK!!! If I were planning to retire around any given year it is almost impossible to know in advance what the market will do. If my portfolio has lost 50% of it's value at the time I want to retire what does that mean for me? It means I have a choice of retiring with half of what I planned or delaying my retirement, neither of which is very appealing.

Summary

If you want to invest in a market where you don't even match the appreciation rate and also desire to take the risk of possibly losing half your portfolio by the time you want to pull your money out... by all means invest in the stock market. If you want ways to manage your risk that you can follow and know with substantial certainty, read some of my other blog posts. While real estate may rise and fall as well the greatest advantage of real estate is that you never need to sell it in order to retire and depend on a fantastic income for the rest of your life. It doesn't matter as much what the overall real estate market does because you can retire on the rental income and keep all of the original investments.

Disclaimer: There are other ways to make money in stocks and even some ways to have a consistent income from certain stocks, but the way people make a ton of money is typically through capital gains (buying low and selling high) or higher risk strategies that a person must typically study for a very long time in order to be profitable. Even then nothing is guaranteed. One of the major reasons I like real estate is that I have control of the investment. I can decide where I buy and how I manage the place as well as rental increases and regular maintenance. The more I control, the better I can control risk. In the end I have to admit I simply don't control almost anything in the stock market.



Here's to your future of risk-averse investing!

If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html

Alberta Housing Market a Standout Performer!

By: Mark Frentz
www.akerahomes.com
mfrentz@akerahomes.com

Remember: Please share this article if you find it enjoyable

What should this news mean to the savvy investor?

The Calgary Herald came out with an article on the booming Alberta economy and housing market around 10 days ago. You can view the article here: http://www.calgaryherald.com/business/Alberta+housing+market+standout+performer/9858815/story.html

It basically says that while Canada's housing market appears to be slowing somewhat Alberta's housing market has recently been heating up. The way I found came across this article was that it was tweeted by a company that makes money from informing real estate investors on what is currently happening across the country.

I'm going to be completely transparent here: Shame on those who make money from investors by posting this kind of stuff and shame on a newspaper that has an uneducated view on what is happening in Alberta right now (You didn't expect that coming did you?)

For the small mom and pop type investors this news tends to inflame the desire to take care of their families and retirements by getting into the market before it's too late. It is false to think that it is too late to get in the market ever. Educated investors have made money in every type of market in North America's history and will continue to do so regardless of how much a house costs. When a newspaper article tells you the market is heating up, it means you need to start rethinking the market in a way that most people won't for a couple of reasons.

Reason #1: Media tends to lag the market by at least 6 months!

Think back to 2007 and 2008 when the market in the US was just about to crash. Do you remember what CNN and other news media was reporting? They were proclaiming how wonderful the market was and how people simply could do no wrong by getting into real estate. At this same time all of the big dogs in real estate were selling off a lot of their portfolio and changing their strategy to match the actual market; overextended. In the next couple of years when the market was low what did the news media report? Basically that you shouldn't touch real estate with a 10-foot pole! What were the savvy investors doing? Purchasing property as quickly as possible!

News media tends to lag what a market is actually doing and I'll give an example from the article under discussion today. The Alberta market has been heating up for at least 8-10 months already. Especially when it comes to starter homes. Over this past winter in Calgary, a typically slow time of year when prices consistently even drop a touch, the market rose to the point where it was difficult to find any kind of decent deal. I remember speaking with my real estate agent regarding a place I believed I could potentially flip. We put in an offer that made sense from the standpoint of making money from the deal and were outbid by over 8 other offers. This was in the middle of winter!

I can guarantee that every investor worth their weight in straw understood Calgary's market and was ready for an incredibly hot spring in the market, but were also preparing for the future year or two based on what was already taking place.

Reason #2: When everyone is buying you should often do the opposite!

You can make money in every kind of real estate market: flat, seller's market, buyer's market... it really doesn't matter what the market is doing. It matters more how you are responding to the current market that determines your success in real estate investing. When the media is raving about the strength of the market you should realize that most people reading that article are thinking of the benefits of purchasing a property. Here the basic rules of supply and demand should kick in. When a lot of people want to buy, it is the ideal time for you to sell!

I realize there are different strategies in real estate investing and I want to provide a broader perspective than simply making money from capital gains. If you are a buy and hold type real estate investor, it may be the ideal time to sit back and watch the market. Why? Because the faster and hotter the market gets, the more likely the next dip is right around the corner. If you understand how to flip a property this is a very dangerous market for you. You don't know when the next dip will take place and therefore you need more than one exit strategy in case it happens in the middle of your infill or rehab project. There are other strategies as well and I won't reference them all here. Please simply be aware that you need to be informed about real estate and make sure you make the decisions that will help you in the long run. In real estate the tortoises typically end up doing way better at the end of the race than the hares.

An alternative to the masses

I'll offer a suggestion that nobody need take. This isn't advice as much as it is a challenge for you to think on in your investing education. Market corrections take place consistently in every market, but especially in markets that can get as hot as Calgary. What this means is just as the peaks are high, the dips are low. We don't know when the next correction will take place in Calgary, but it typically happens when everyone is super excited about real estate (there are specific factors to watch for other than simple excitement from the masses). If a real estate deal makes sense today, then you shouldn't wait on it too long because it'll be gone. There are important factors that help it make sense and these are discussed in other places in these blogs ('The first dimension of real estate' is an example). If you can't find great deals, however, it may be time to wait until the next dip. Why? Because it is when the market is falling that so many fire-sales are taking place and you can pick some absolutely excellent deals that will be pillars in your portfolio for decades to come.



Here's to your future of risk-averse investing!

If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html