Mobile Home Investor · Spanaway, WA · Member since 2008 · 1k+ posts · 578 votes
With millions of baby boomers getting ready to retire between the years of 2012 to 2016, just how comfortable are you leaving your money invested on Wall Street? The demand to buy pushes prices upwards. With these retirees drawing on their retirement funds, they will be selling. As the demand to sell increases - the price drops. More money comes out and prices drop even lower. Will this lead to another crash of the market or will it cause a complete collapse? Let's hear some different viewpoints on this topic.
Real Estate Investor · Phoenix, AZ · Member since 2009 · 1k+ posts · 1k+ votes
15y
That is not true in secondary markets. Supply is always equal to demand in the stock market because there is always a buyer and a seller on every transaction. What changes is people's perception of valuation, risk, etc. And that cannot be out of line with intrinsic value for a very long time.
Mobile Home Investor · Spanaway, WA · Member since 2008 · 1k+ posts · 578 votes
15y
Not only are Americans losing their homes - their retirement funds are being whisked away from them also - just as about 60 million baby boomers getting ready to draw on funds that are drastically depleted. Where does all that money disappear to?
Real Estate Investor · Phoenix, AZ · Member since 2009 · 1k+ posts · 1k+ votes
15y
It is incorrect to think of stock prices in terms of demand and supply or money coming into the market and leaving the market.
1. Stocks are financial assets with an intrinsic value that is based in the present value of the future dividends. Over the long run, the price has to reflect that intrinsic value.
2. Money does not really enter or leave the stock market. For every sale, there is a buyer and for every purchase, there is a seller. The exception to this rule, of course, is the primary market - IPOs, etc.
Real Estate Investor · Phoenix, AZ · Member since 2009 · 1k+ posts · 1k+ votes
15y
That is not true in secondary markets. Supply is always equal to demand in the stock market because there is always a buyer and a seller on every transaction. What changes is people's perception of valuation, risk, etc. And that cannot be out of line with intrinsic value for a very long time.
Investor · -, IL · Member since 2010 · 409 posts · 616 votes
15y
I kind of have the same thought as Vikram, for every seller, there is a buyer.
It is not the looming upswing in baby boomers getting ready to retire that really has me doubting Wall Steet, it is some of the greedy slim that is behind what caused this mess. I watched a documentary on how Goldman Sachs positioned themselves during the collapse and I literally felt like I wanted to puke.
I have been playing with stocks and mutual funds since I was 16 and I have always had the mindset of keep at it and it will pay off in the long run. But now, seeing how many people have saved their entire lives for retirement and that dream is just fading into the sunset, I have decided to scale back my stocks and put some hard earned money into real estate.
Investor · -, IL · Member since 2010 · 409 posts · 616 votes
15y
How difficult is it to get into commodities?
All just depends on the commodities that you want to invest in. When it comes to commodities, I prefer to take actual delivery of the product. Some people may disagree with me on this, but I do not like having a piece of paper saying I own some gold or silver, I like to have the actual gold or silver sitting in my safe.
Now that being said, it would be pretty hard to find a place to store actual barrels of oil. For this reason, I do like gold and silver, and I am able to purchase it at the local Gold Center. I may have to pay a very slight premium for the metals, but I get all giggly inside when I open the safe and see them instead of a piece of paper.
Please note that I am not a professional investor, so these are just my opinions.
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
15y
The crash isn't coming. I realize people are upset about the state of the economy, but we still have the largest and most diverse economy in the world by a long margin.
As Vikram has pointed out there is a buyer for every seller in the secondary market. During times like these there is generally a "flight to safety" and the young, vibrant, entrepreneurial ventures are shunned for stable cash flows. Everything goes in cycles and this will correct itself over time.
I am a big believer in asset allocation and diversification. There have been numerous academic studies that show that the large proportion of one's returns are determined by ASSET ALLOCATION. Having money in equities as well as fixed-income product, real estate, etc. is a good thing.
Mobile Home Investor · Spanaway, WA · Member since 2008 · 1k+ posts · 578 votes
15y
Bryan: The recommended amount is 9% of your portfolio should be in real estate. I once had a financial planner tell me to sell our 2 apts and put all the proceeds into the stock market. I am glad I did not take any of that advice!
Mobile Home Investor · Spanaway, WA · Member since 2008 · 1k+ posts · 578 votes
15y
Vikram: The stock market has been referred to as one BIG Ponzi scheme where you pay off old investors with money from new investors. The scheme only works if there is new blood putting their life savings into the system. However, if money is pulled out of the market - stock prices fall and investors lose their money. Social Security has also been referred to as the same scheme. Funds from today's workers are paying those who are retired!
Altus, OK · Member since 2008 · 2k+ posts · 690 votes
15y
Originally posted by BigBubba:
I kind of have the same thought as Vikram, for every seller, there is a buyer.
It is not the looming upswing in baby boomers getting ready to retire that really has me doubting Wall Steet, it is some of the greedy slim that is behind what caused this mess. I watched a documentary on how Goldman Sachs positioned themselves during the collapse and I literally felt like I wanted to puke.
I have been playing with stocks and mutual funds since I was 16 and I have always had the mindset of keep at it and it will pay off in the long run. But now, seeing how many people have saved their entire lives for retirement and that dream is just fading into the sunset, I have decided to scale back my stocks and put some hard earned money into real estate.
Yeah I saw the same documentary. What pissed me off is when they had their so called people deny that they were in the wrong doing give me a break :roll:
They knew about those sub prime mortgages and that they were toxic but they lied to investors and told them they were ok to invest in the meantime they created the synthetic CDO to bet against them knowing full well that they would win in the end because they knew that those mortgages were going to default.
They should have fell along with Lehman Brothers but instead they got a bailout paid by us the tax payers and still profited. Bunch of crocks but then again they been sleeping with DC for the longest time.
Real Estate Investor · Phoenix, AZ · Member since 2009 · 1k+ posts · 1k+ votes
15y
Tom, how does new money enter the secondary market? (It is not possible.)
My main point is not really different from yours - in the long run, prices will reflect intrinsic value and, therefore, making long-term predictions based on demand and supply is incorrect.
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
15y
Originally posted by Realtyman:
Bryan: The recommended amount is 9% of your portfolio should be in real estate. I once had a financial planner tell me to sell our 2 apts and put all the proceeds into the stock market. I am glad I did not take any of that advice!
According to whom? This may be an "optimal" allocation if you are buying REIT shares and following some voodoo CAPM weighting. Those that can buy at a large discount to intrinsic value skillfully should have a much higher weighting in real estate IMO.
That doesn't detract from the fact that some of your money should be in other assets too. Wealth concentration may be good for trying to grow wealth quickly, but it exposes you to a greater degree of systemic risk too. Spreading your bets across asset classes is the safter course for most.
There isn't anything patently unsafe about Wall Strett investments. There are plenty of people that have become VERY rich investing in these products. Just because people sometimes encounter "advisors" that are glorified salemen doesn't mean the products themselves are unsound.
Investor · -, IL · Member since 2010 · 409 posts · 616 votes
15y
Bryan,
I totally agree with you that I do not think we will fall to the status of some third world country with a total collapse of the nation.
When I say I am buying into gold, I am not one of those nuts that is stockpiling thinking we are going to have a collapse and that I will have to use it as actual "money". I am buying just a little of it right now as I do think we will see some degree of higher inflation in the future.
I like silver because when this all turns around and manufacturing goes back to normal , it is a highly used industrial metal.
I just got caught with my pants down and heavy in equities when I should have known better. I still have a large percentage of my investment money in the stock/bond market, but as you made a great point, asset allocation is the key.
Real Estate Investor · Phoenix, AZ · Member since 2009 · 1k+ posts · 1k+ votes
15y
For what it's worth, I never do asset-allocation. (Neither does Buffett or other members of the focused investing school.)
I think asset-allocation may make sense for the majority of people who do not know what they are doing. But if you are truly an expert at something, and know that the ROIs are good in that area, it makes more sense to focus your investments in that area of expertise than spread it all around.
Mobile Home Investor · Spanaway, WA · Member since 2008 · 1k+ posts · 578 votes
15y
The mantra is always Diversify, Diversify, Diversify. This makes it easier for the middleman to add their fees to pay their bills.
So, if there is always a buyer for every seller, the stock price rises as long as they are buying. When the selling starts the prices go down to reflect the lack of demand. That is still supply and demand logic.
Real Estate Investor · Phoenix, AZ · Member since 2009 · 1k+ posts · 1k+ votes
15y
Dale, buying and selling are just two different sides of the same transaction.
My main point is that, in the long run, price is going to reflect intrinsic value. It may undershoot and overshoot the intrinsic value over periods of time, but if you do a long-term graph, you will see the price reflecting value and moving around the value.
Therefore, unlike consumer products, stock prices cannot be predicted based on long-term expecations of savings, spending, demand, etc. I believe that was your original thesis and I was just letting you know that you are on the wrong track with that method of analysis. I do agree that your analysis makes sense for other things based on demographic changes.
Landlord · Seattle, WA · Member since 2010 · 3k+ posts · 1k+ votes
15y
There are other factors at work in the stock market. Warren Buffet has a significant advantage compared to other investors. There are those that will attempt to follow his investments. When less knowledgeable investors buy into his positions it can raise prices in the short term creating a short term opportunity. Not unlike the idea the Hunt brothers had.
After hours trading has always bothered me as well. The system is not really set up for the average investor to do well without competent help and then it usually takes money.
There are other practices that I dislike as well. My biggest concern with stocks and bonds is that I have little control of my money. A great deal of trust must be put into market research, advisers and the rest of the system. Many parts of the system can have problems.
Mobile Home Investor · Spanaway, WA · Member since 2008 · 1k+ posts · 578 votes
15y
Guess I have been reading the wrong books as numerous sources link the stock price increase/decrease to whether buying or selling. Only a better reason to stick with real estate - something you can touch and is not that subject to such drastic price fluctuations based on rumors or actions in other countries.
Landlord · Seattle, WA · Member since 2010 · 3k+ posts · 1k+ votes
15y
Dale, I'm sure there is money to be made in the stock market, I just don't have time to adequately research and monitor my investments there. I have finally found an adviser that I can work with though.
Personally, I'm enjoying the RE opportunities that keep coming up. Probably because the investment is nearly all under my control. In time I'll probably take on partners though.
Real Estate Investor · Phoenix, AZ · Member since 2009 · 1k+ posts · 1k+ votes
15y
Charles and Dale, I agree with what you guys have posted although some of the weaknesses of the system are actually good for people like me. The stock market, in my opinion, is a great place to invest for a specialist who is willing to learn and acquire expertise in it.
But for the majority of people, I agree that it is not such a great place to invest. In that way, I think it is very similar to other asset classes, including RE. For you guys, who are members of BP, RE seems like a simple thing. But that is because you are all experts at RE and understand it the same way that I understand stocks. Since your expertise is in RE, and you are very good at it, I would suggest that you stick to it because you are probably always a step ahead of everyone else.
But for someone who is an expert at stocks (e.g. Buffett), RE would make very little sense because he would be diversifying away from his area of expertise into an area that he does not know much. I know that it took me a few months and a lot of effort to acquire the skills that I now have in real estate, and I suspect I still do not know as much about it as most of you guys.
Landlord · Seattle, WA · Member since 2010 · 3k+ posts · 1k+ votes
15y
Great points Vikram. This is also one of the reasons that diversification rarely leads to real wealth. An investment can be a wise choice for someone and the same investment can be a foolish choice for another. Having an end game , understanding the timing of ins and outs, knowing the players and the rules are all necessary ingredients to minimize risk and know that you have a strategy that will succeed.
IMO any one that sees the stock market as a crap shoot should stay a way from it. You are quite right that RE can be a bad investment if someone doesn't know all the elements involved and have a plan in place.