patrick.net

8% return is what 'everyone expects' from stocks.

It seems crazy to expect that going forward but those are the assumptions you get from the 'financial planning' industry/scheme.

taking money from your 401K is simply having it taxed as current income, plus a 10% penalty.

So you'll be taking at 40% hit right off the bat.

Not too terribly attractive, but if you are secure in your work you could consider a 401k loan. These aren't so bad, you have to pay interest, but it is to yourself. You'll technically be taxed twice on the interest you've had to pay into your 401k, once when you first made the money and again when you draw it out of the 401k.

I really don't think we're heading into deflationary collapse from here (despite what the bond rates are saying), so you have my blessing to invest in rental real estate.

Leech.

I'm going to sound like a worn-out record to the normal folks on here... But an awful lot of the "advice" I hear in regards to getting out of the market is based almost entirely on recent market activity. This is usually the case- people get freaked out, assume that "this time is for real" and assume that we're all in a new paradigm where we should all stuff money under the mattress and abandon the stock market.

The truth is that for the last 100+ years stocks have on average gained a median of 7-8% per year- over the Long term. Long term being a 30-40 year stretch. Doesn't sound like much but once the compounding starts its not hard to eventually have a million bucks by the time you're 60.

I also find it interesting that for the most part, a lot of real estate investors are using recent values ( bubble values) as a gauge to what they think is a good value in real estate. Truth be known prices in many major metros like those in CA, NY, MA, and so on are still overpriced. I think this is because people either willingly or subconsciously believe that today's RE slump is a temporary bump on the way back to another spectacular bubble. Why do I find this interesting? Because stocks are in fact at pretty low prices now. If we look at RE and stocks as simply investments stocks are a bit more compelling. If you wanted to buy a car and that car was $10,000 less tomorrow, would you buy it? Of course you would. Yet when it comes to stocks people do the total opposite and dump em'.

All I can say is that growing up, my parents owned 2 rentals. They were a pain in the ass. Houses deteriorate and need constant and often expensive repairs, especially when you get renters coming in every few years and have to re-paint the whole interior. At the end of the day they did ok on them. But nothing compared to if they had taken that same money and stuck it in the market.

But anyway, I probably wouldn't seek important, life-changing investment advice on a forum. Talk to a financial adviser or someone who can take a look at your situation and give you some opinions.

It's 7-8% Average, if you live 100 years.

Between 1968-1980, the stock market hardly moved at all over that time.

1980-2000 it boomed.

So it all depends on when you reach peak savings, for most people, in their middle ages.

If you turned 50 around 1980 or 1955, great! You'd have been investing into a boom.

If you turned 50 in 1968, not so great. Or in 2000 for that matter. You'd be 61 this year and if you had invested in broad domestic market indexes, it's pretty much a wash.

edvard2 says

The truth is that for the last 100+ years stocks have on average gained a median of 7-8% per year- over the Long term.

We've had a lot of tailwinds these past 100+ years.

Oil was under $20 (in today's dollars) for the first 75 years of the 20th century.

We have immense scientific and technologic advances in all fields that has increased productivity greatly.

Thing is, there is something of a low-hanging fruit risk here.

Population grew from 80M in 1900 to 300M+ today. Clearly we had room to grow in 1900! I'm not seeing the same today.

But all that can be as it may, what has been happening 1980-now is something of a ponzi.

Here is the nation's debt-to-income ratio:

http://research.stlouisfed.org/fred2/graph/?g=2oE

We ran a relatively tight ship 1960-1980 but then something happened.

The stock market may have averaged 8% a year but much of that growth was just built on debt, 1980-1990 and 2000-2008.

Let's add the S&P to the above graph:

http://research.stlouisfed.org/fred2/graph/?g=2oG

See the pattern?

Complicating stock ownership is that the baby boom is going to be looking to liquidate their holdings they've been building up since the 1980s.

Generations X & Y have to pay the baby boom retirement and medicare burden, I don't think we're going to have much left to also pick up their stock portfolios too!

Oh, the $10T national debt isn't going to pay itself, either. Probably be $20T by 2020.

I don't know where we go from here, but I don't think looking at the 20th century is a good analytical tool.

We might get wonderful tech advances like free energy and whatnot. Or things might keep circling the bowl as we get stupider and stupider and do dumber and dumber things.

Optimism is somewhat misplaced tho.

Bellingham Bob says

But all that can be as it may, what has been happening 1980-now is something of a ponzi.

LOL

Bellingham Bob says

We might get wonderful tech advances like free energy and whatnot. Or things might keep circling the bowl as we get stupider and stupider and do dumber and dumber things.

ROTFL. BB - well said.

... and again here we go again with more speculation that "this time its different" again. You all can guess all day long and claim that the past 100 years was some giant fluke and that somehow guesstimating the future via today's issues will deliver and answer. Personally I'd rather use a decision based on longer term results. As I've said before there are several retired people in my family who are millionaires not because they bought real estate, gold, or stuffed animals. Just plain old-fashioned 401k's and mutual funds in which they contributed about 10% of their yearly income into for 30+ years.

Bellingham Bob says

taking money from your 401K is simply having it taxed as current income, plus a 10% penalty.

So you'll be taking at 40% hit right off the bat.

Not at all true. You can move to a self directed IRA. In a self directed IRA you can invest in anything you want, including buying rental properties and making private mortgages while maintaining tax deferred status without any penalty. Look at Sterling Trust in Waco Tx. which is who I use. http://www.sterling-trust.com/current-clients/online-account-access.html

If you really believe things are going to blow up there are even ways to move your IRA's overseas. Not a bad idea, domestic IRA's are the last really big pot of money left in the US for the self serving politico's to tap into. I've got about 50% of my money out of the country and about 50% in self directed real estate rentals.

Even if politico's were to force IRA's into bankrupt government bonds (real possibility as things get more desperate) they will have a hard time getting any money that's already tied up in real estate. It could be done but it's probably not worth the effort for the few people who use self directed.

The 'history' of the market gives me little comfort these days. I didn't ask the question because I am panicking over a 1 day drop. I have been getting clobbered in the market for 2 decades and have had it with that casino.

Trading has gotten 'mechanized' by supercomputers and crazy algorithms that instead of looking quarter to quarter, are looking microsecond to microsecond. Can you still find value stocks and do ok, probably, but you are totally at the whim of the market 'tide', and my 'tide chart' says the next high tide is a LONG ways off. Besides, my 401k just gives me a couple of sucky mutual funds which have horrible returns even in a good market.

Corruption is rampant, I tried playing the market a little, and in my first portfolio of 6 stocks, 50% (not joking) ended up with class action lawsuits against them for fudging data. Still doing carryover losses from 2000 on that mess.

In order for the US economy (and thus the stock market) to re-energize in any appreciable way, people need jobs. Companies are sitting on tons of cash but won't hire because of lack of demand, and consumers won't spend because the economy sucks (they just don't have the money). Its a viscous cycle that is historically broken by government stepping in and stimulating either the consumption or employment end of things. Our dysfunctional government won't be able to do any stimulating any time soon though as long as this idiotic austerity mentality continues.

So barring any 'class warfare', we'll probably look similar to Japan over the past 30 years (flat or slowly declining).

So back to Bob's comment about a 40% hit. In simplistic terms, if 30% of that is tax, which if I am making more when I retire will be 33%, then in reality I am only taking a 7% hit, correct? So does taking a 7% hit now (then making 12% on what's left) outweigh leaving it in the stock market and making 5% (if I am wildly optimistic). The reality is in 10 years if the US isn't having food riots I will be a happy camper, but don't expect the stock market to move appreciably. I could move my 401k into bonds and make a whopping 2%, but at least I wouldn't lose money if we pull a 'Japan' market for the next decade. I'd rather put money where I *know* I can make 10-12%. I don't expect to 'get rich' renting condos, but I am fairly confident I won't lose my shorts either.

Many thanks on the nudge in this 'self directed' direction. We have enough units now we were going to set up a LLC by year end anyway, so its a good fit.

bob2356 says

Not at all true. You can move to a self directed IRA

I'm not sure why the market is confusing to people. It helps to think about it in broad terms. Think about all the things you do and have in your possession: a car, a watch, shoes, clothes, food, DVD's, cell phones, fast food, beer, and a zillion other things. A company makes and sells those things. They're all traded on the market because they either make or lose money. Like it or not the cost of everything goes up. That's what inflation is all about. But at the same time that means the companies that sell that stuff to you also charge more and in turn make more money. That means stocks inflate. The thing is that stocks historically, long-term out-inflate inflation at the aforementioned percentage.

So the bottom line is that the reason stocks are almost so entirely reliable is because its a representation of all the stuff we use and buy. So unless you think all companies will go out of business and we will stop buying things lock stock and barrel then the market is going to go up.

Edvard. Tell that to Japan 1992 - market was at 20,000, today 10,000. That's 20 years, and in 20 years I plan on being retired, and I'd like to do with with more than half of what I have currently saved. Are we another Japan? Dunno, probably not, but maybe yes. (Its purely a gamble)

Your analogy assumes that stock prices are actually tied to a companies financial health and forecast and that P/E ratios correlated evenly with stock price. Those days are long gone. Your assumption also assumes that people have the continued cash to buy those products (today they don't which is a big part of the problem).

edvard2 says

Like it or not the cost of everything goes up.

But do profits?

But at the same time that means the companies that sell that stuff to you also charge more and in turn make more money.

Not if we consumers don't have any money. 70% of the economy is Joe Consumer.

Joe Consumer had been borrowing money to stay in the game, but that's over now.

Big Government has stepped in the gap, but it's unclear to me how long this is going to last.

So unless you think all companies will go out of business and we will stop buying things lock stock and barrel then the market is going to go up.

We've seen 35% inflation since 1998 yet the S&P is flat since then.

I think your theory needs more work.

bob2356 says

You can move to a self directed IRA.

If your employer's 401(k) plan allows this option. Some employers don't have the option, others allow it without restriction, and some have certain restrictions (e.g. you have to have a minimum of $X in your account, and you can only move Y% of the account to the self-directed).

Flash there are no guarantees in life.

However, not investing into 401k would be pretty dumb. It doesn't hurt to plan for retirement, considering your work probably matches at least 3% of your salary dollar for dollar when going 401k or pension route.

If you want to get serious about RE, not the child play shit most talk about buying some SFH and renting it out... well go out to Detroit. Buy an entire apartment complex there. A fella I know bought one for roughly ~100 grand. You'll make money, could be a profitable business if you run it right.