Archive for the ‘Real Estate v. Stock Market’ Category

Real Estate or the Stock Market?

Author: Chuck Marunde

22 Jul

Where should your money be parked in tough economic times? Should you be in real estate or in the stock market? In the news today Wachovia Corp. reported a record quarterly loss of $8.9 billion, slashed dividends and announced 6,350 job cuts. The stock fell 12 percent in early New York trading in a single day.

I was talking with a client yesterday who has watched his retirement account dwindle in his mutual fund accounts over these last few quarters. Now if your financial adviser and money management firm are good, your losses are small, but the majority of securities and money managers, in my opinion and experience, are more salesmen than professional investment managers.

Diversification is a solid investment principal, but if one had to chose between real estate and the unstable stock market, my argument is that real estate is far more secure. Real estate prices may go up and down, but over the long run real estate has been a reliable investment, and real estate doesn’t go “poof.”

True Stories. “Under McFadden’s management, Bradley Simon’s retirement fund dwindled from $700,000 to $267,000.” “Ron and Pam Yandell of Mansfield, Texas, turned over their $1.4 million retirement fund to a stockbroker who invested in risky tech stocks without their approval. They lost $230,000 in the tech crash.” Read the full stories at Real Estate Still a Good Investment.

If all we had to worry about were the economic variables driving the stock market roller coaster, perhaps it wouldn’t be so bad, but there is another more insidious variable over which none of us have control–fraud.

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Real Estate Still a Great Investment

Author: Chuck Marunde

4 Apr

Almost daily I see articles in newspapers around the country about more scandals, another stock brokerage, financial services provider, or mutual fund paying some extraordinary penalty or huge settlement for fraud, misrepresentation, or some other criminal violations. The Wall Street Journal reported on August 29, 2006 [1] serious problems at Ameriprise, formerly known as American Express Financial Advisors. Securities America, an arm of Ameriprise, settled for $22 million dollars. The story is that David McFadden, a hot shot broker for Securities America was lying to Exxon employees about their retirement funds. Under McFadden’s management, Bradley Simon’s retirement fund dwindled from $700,000 to $267,000.

Or take another of McFadden’s clients, 73-year old Pat Salatich, a nurse for 25 years at Exxon. She deposited $565,383 with McFadden in 2001, and after only withdrawing $189,000, she learned there was only $73,000 in the account before she stopped the bleeding. She now lives on about $1,500 a month in social security.

Ron and Pam Yandell of Mansfield, Texas, turned over their $1.4 million retirement fund to a stockbroker who invested in risky tech stocks without their approval. They lost $230,000 in the tech crash. After a five year legal battle and lots of costs and stress, they won an award of $990,000 against their stockbroker, but no one can find him to collect it. He’s disappeared. [2]

Real estate prices may go up and down, but over the long run real estate has been a reliable investment, and real estate doesn’t go “poof.”

To be fair, I do know an asset manager who has a remarkable and consistent record of steady gains and no losses for his clients over many years, but he is the exception rather than the rule. Real estate is a good long term investment, and in times of uncertainty with a real estate market that slows down as it has in Sequim and Port Angeles, cash is king. Investors or home buyers who have cash and good credit will be the big winners.

[1] A Star Broker, “Virtually Unsupervised,” Puts Ameriprise Arm Under Scrutiny, The Wall Street Journal, August 29, 2006, page C1

[2] A Word of Warning, The Seattle Times, September 3, 2006, page F1.

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Real Estate v. Stock as an Investment

Author: Chuck Marunde

17 Dec

If you do a search on the Internet, you will discover that the majority of articles argue that stocks have smashed real estate as a long-term investment. They will quote statistics by various companies which are totally focused on stocks. The bias is blatant. While there clearly are years in which stocks have out performed real estate, one of the major reasons I argue real estate is a better long term investment is ignored in all these comparisons on the Internet.

This may be the best single reason to invest in real estate. Some retirees have lost much of their retirement fund in a crashing stock market (April 2001), many have lost much of their retirement as the result of tech hyperbole pushed by venture capitalists and major brokerage houses, and some have lost all of their retirement fund through corporate accounting fraud. This last one is the most important reason to invest in real estate, or at least not to put all your eggs in the stock market basket. This makes real estate not just a little better as an investment but 10,000 times better. How can you compare two investments where one can just disappear through economic disaster, fraud, or other criminal acts, and the other cannot disappear because it is a piece of the earth. Real estate simply doesn’t suffer the kind of fraud and non-economic tragedies of stocks.

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