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