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Investing in Stocks vs. Real Estate - Which is Better? Part 2 - Diversification Print E-mail
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Personal Finance - Investing
Written by Ahmed Amr / Omie Ismail   
Tuesday, 19 January 2010 02:35
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Investing in Stocks vs. Real Estate - Which is Better? Part 2
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Omie: Stocks allow you to diversify into dozens of industries to take advantage of a wide swath of growth. It also allows you to hunker down into resilient sectors when things start to look ugly. Look at energy right now, the economy is sluggish and we are looking at the prospect of a double dip recession (did we really come out of the first one yet?) and yet oil is fetching near $80 a barrel, nominally higher than anytime before 3 years ago. And areas like health care continue to see growth. In times with high interest rates, you can invest in debt free companies in technology that are only marginally affected or even invest in companies that do well when the economy tanks. With real estate, you can be geographically diversified, but for the average person if real estate is heading down, their property value is going with it.

Ahmed: Even diversified portfolios take a huge hit when the market tumbles. Oil is at $80, but it was $147. If you buy and hold a property, it really shouldn't matter what happens in the short run. If your financing is fixed and you are getting good cash flow from the property, you could care less if the value dropped 20%. As long the rent is coming in, it shouldn't make a difference. If you want diversification in real estate, you can always buy different types of properties. A high-end rental, a low end rental and even a small commercial space. I have never dabbled in medical office space but if you had some of that, you'd be doing really well right now.

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Sleuth  - Stocks vs. Real Estate |2010-01-20 13:06:58
Speaking of the average American,my parents were in that category. They lived in an area that never had a hot real estate market just like many areas in this country. They purchased a home at $17,500 and 40 years later it was sold for $65,000. It was their home and they enjoyed it; but they did not make a fortune.Real estate is a long term investment and depending on the market when you can unload it. You may have a long wait. Sometimes as much as seven or ten years.
Omiewon  - About a 3.3% Return |2010-01-21 08:33:39
Sleuth, that's about a 3.3% compounded return. Less if they put any improvements in, which over 30 years, I am sure they did.

Considering that it probably spanned the late seventies early eighties where inflation was running rampant, my guess is that they didn't keep up with inflation. That's why I think the returns on real estate are often hyped. It's a home, it served a purpose, and it appreciated slowly over time.
amp  - Round 2 - a little sluggish! |2010-01-19 17:53:18
Come on you guys! Git in there and show them what you got! (Okay - enough of this ringside commentary - Omie you said it yourself - "the only way to reduce your risk is to diversify" - a little real estate, a little stocks (better a 401-K or similar), a little savings, an IRA here or there - I think with all of these things, you still have a gamble - against the future of the unknown). Can we go Round 3 or are we KO?
Omiewon  - 3 Rounds, We're Tired after 2! |2010-01-21 08:29:18
We both agree that having some of each of these is the best way to go.

Thanks for the comments.

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