Where real estate should fit into your overall portfolio


Recently, I upset some people by talking about how real estate was not the best investment you could do. I talked about a BankRate.com survey that found investors thought real estate was the No. 1 thing you can do to get rich, CDs and savings accounts were No. 2, and stocks and mutual funds trailed way behind in third place.

I talked about why stock investing over the long haul was the best place to be. And some people took real exception to that.

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Where I think real estate fits into the picture

But I am a real estate investor who owns several properties. I’ve been a real estate investor since the early ’80s. So I do fundamentally believe in it. Real estate is a great part of how you build wealth over time. So I want to make it clear that if you want to own a rental property or two, real estate is great. But it’s only part of the puzzle, and likely not as good a piece of the puzzle as being a stock investor in something as simple as your 401(k) through work.

Other than the housing meltdown of last decade, real estate is something that lowers your risk level in the shorter term. But absolutely fundamentally over the longer haul, you will almost certainly make more money in stock-type investments. But real estate in combination with it is fantastic.

In fact, I saw an item in Barron’s headlined, ‘When stocks fall, RE may be the best defense.’ And listen to this stat: In 14 of the 15 previous stock market declines (bear markets), home prices continued to go up at least some while stocks went down. So the point is, real estate can produce income for you in a down market.

So if I gave the impression that real estate is a no go, I did a bad job communicating my message. It’s part of the equation, but it should not be the only thing you do, just as stocks should not be the only thing you do.

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