BiggerPockets

That's easy - NO! The stock market is now a giant ponzi scheme. The Fed is essentially buying stocks to create the illusion of an economic recovery. If the Fed stops buying (i.e. no QE3, the market will crash).

At least with rentals, I am in control of my investment and I make money every month. I'm not depending on a ponzi scheme to put food on the table.

Mike

It's all about investing in what you're an expert in. Real estate tends to be less financially complicated than investing in businesses (via the stock market or otherwise), which is why -- I believe -- more people are successful investing in real estate than in business.

But, if you are an expert in fundamental analysis of companies and have the time/discipline to do your due diligence and make expert decisions, you can make just as much (if not more) money investing in businesses than you can in real estate.

Warren Buffett is the perfect example of that...and there are thousands of people like Buffett who make millions doing specialized investment in businesses, whether through the stock market or directly.

Also, I'm sure there are plenty of landlords who I imagine wish they had put all their money in the stock market rather than in bad real estate investments over the past 5-7 years! Just like non-expert stock market investors, they put their money into investments they didn't fully understand, and ultimately lost a lot of money.

The key is to invest in what you are an expert in, and stay away from investments where you are not an expert. The specific investment vehicle is irrelevant...

Investing in stock market is one huge speculation that the stock prices will go up in value. We are sold on the idea that people prepare for retirement by investing in 401k and taxable mutual funds. It seems a fairly easy thing to do - contribute $50/mo, and based on the wonderful retirement calculator provided by the 401k company, you will have no less than $1mil in 30 years. Too bad their hypothetical 8% annual returns are just that - hypothesis.

Any time you invest without fully understanding the underlying investment, it's speculation. Doesn't matter if it's the stock market, commodities, real estate, etc. When you don't understand the investment, it's speculation.

There were plenty of real estate investors who did the same thing back in 2002-2007 -- they plowed all their money into real estate without understanding real estate investing. In the end, they were just speculating and many lost a lot of money.

Personally, I've made a good bit of money investing in businesses (more than I've made in real estate), and it wasn't blind luck. It's possible to make a lot of money in various types of investing (including investing in businesses), but it's impossible without knowledge and education.

Here's some fun examples for everyone to ponder. Using 50k to invest.

If you got in the market around March of 09. "The bottom", using plain old Call Options on the S&P500 ticker SPY.
1 contract = 100 shares.
cost = approx 10% of stock price per share.

March 09: 1 SPY contract would cost approx $6.00 per share or $600 for one Call Option.

Today, the value is about $13 per share. $7 profit per contract.

If you originally invested your 50K. You would have controlled 82 contracts or 8200 shares.
8200 X $7profit= $57,400 over 2 years. 114% Not bad.

Let's try Apple computers. (AAPL). Same time frame. March 09.
AAPL's low was $80 per share.
Call option cost approx $8 per share X 100 shares= $800 per options contract.
50k would control 62 contracts or 6200 shares.
If you sold your shares at the high. $360 per share.
Are you sitting down?
$280 per share profit. $280 X 6200= $1,736,000.
How many flips does it take to get to the center of an Apple?
Wasn't That Fun?

Expert investors -- whether it be real estate, business, or other assets -- don't rely on hope. They make informed decisions using their experience and knowledge.

That said, if you're going to just put your money into the stock market and *HOPE*, you're correct that you shouldn't be in the stock market.

Likewise, if you're going to put your money into real estate and *HOPE*, you shouldn't be in real estate.

Looking at a long term chart of Microsoft shows that from May '86 to current, MSFT returned 25,618%.

Of course, the #3 horse came in 1st in the 4th race yesterday.

For every Microsoft, Wal Mart, and Google, there are a thousand Enrons, World Coms and Edsels. Show me a stock that I can buy today for $100,000 that pays a monthly dividend of $1,000 and I will buy it.

The vast majority of professional fund managers fail to beat the market, with super-computers, access to CEOs, and all the data on the planet at their disposal. To think that the little guy can beat the market consistently over time seems extremely unlikely.

It seems pointless to me to talk about "what if" you'd invested in Google, WM, Apple, Fed Ex, Microsoft, whatever. You'll never know more about one of these businesses than professional fund managers. If you made a mint on one of these, great, but there was a huge luck component, not something I want to rely on.

The market is skewed toward computer-powered manipulators. "High frequency" trading firms use super-fast processors and trading algorithms designed and tweaked by PhD's in real time every single day to rake tens of billions of dollars out of the pockets of average investors each year, through manipulation of bid/ask spreads and direct data pipes into the major exchanges. The exchanges look the other way because of all the revenue earned.

Hedge fund managers run equally complex processes, with armies of PhD's, lots of bribery-induced insider trading info, to also outmaneuver the little guys.

It just seems that real estate offers a much more level playing field for the smaller investor due to the sheer physicality of it, the need to see it, touch it, do accurate rehab estimates, etc. There are countless inefficiencies and supply/demand imbalances which can be exploited.

No doubt, as Jason said, there is money to be made investing your "private equity" into smal businesses that you have knowledge of (such as Joel mentioning buying a beaten-down restaurant franchise that will generate 60k of fairly passive cash flow). This is more like RE in many ways and unlike investing in publicly traded stocks.

J, I went to that website and saw some decent returns. I guess I should have also added "indefinetly" to my list. Getting 12% dividends can happen in any given year, but let's see it happen for 10 years straight, 30 years straight, or longer. Any stock that has consistant dividends like that will most likely see a huge price rise, thus lowering returns for new investors.