Back in "the good old days" when the Dow was below 1,000 (yes one thousand) and securities were simple (no derivatives, no hedge funds, the futures market only dealt in commodities like corn, etc) the long term investor could make intelligent decisions. Fundamentals were key. You looked at industry trends, PE values (price to earnings ratio), management strength and style then bought into a company fully expecting that over the long term you should average a return approaching 10%. In the 80s and early 90s that worked well.
The small investor and the retirement funds like IRAs & 401(k) accounts rushed into mutual funds. The easy way to participate in the inflation proof, equity building investing with management thrown in. The idea of placing retirement dollars into stocks and bonds still is a prudent move, but why not diversify some of the funds into real estate? Side by side over the long term, real estate has held its own with stocks without all the volatility. Yes, I know there has been quite a drop in some real estate markets, but in the majority of the country we have not seen large reductions in market prices.
When analyzing an investment you still need to look at fundamentals when it comes to real estate. It has become quite difficult to judge stocks on fundamentals because there are way to many variables that come into play these days. Just read the business headlines over the past year. How many companies that fundamentals research would have given a BUY signal fell on very hard times? Real estate investment is still fairly easy to analyze with location, cash flow projections, upkeep and maintenance projections, etc. Plus you can go and "touch" your investment and understand how the overall supply and demand principal will sooner or later bring that nice rate of return on your money.
So, if you have your retirement dollars stuck in the stock market, ask yourself "What has Wall Street done for me lately?" and consider moving some of the money into real estate through a self directed retirement account.
Scott Grund is a real estate agent in Greenwood, SC specializing in investment real estate utilizing the tax advantages of Self Directed Retirement Accounts. Scott can be emailed at scott@ScottGrund.com or contacted by phone (864) 554-4190.
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