Joe 401k?

[babbleon]

Joe 401k doesn’t have the knowledge and insight that most on this board appear to have. The discussions on fundamentals and some of the terminology is still new to him.

Being that the stock market is potentially a bubble and it’s important to diversify where should Joe 401k put his money over the next few years?

From what I gather nothing seems like a very safe investment so what should one do to protect his money and try to earn a reasonable return?

[HLS]

My money would be on rental property in slow and steady growth areas around the country that have never seen a boom.

You cannot expect crazy appreciation in these markets, but you can buy rental property that will cash flow nicely and provide depreciation at a much greater benefit than So Cal due to the dwelling value (vs the land)

With 25% down payment, a 5% appreciation rate offers a 20% (gross)return on investment, even if it’s a break even on cash flow.

There are many parts of the country that offer affordable units.
There is always a risk, but I’d be happier in rentals than in stocks for the long term.

The stock market is nothing more than gambling and a legalized pyramid scheme, with winners and losers.

[HLS]

My money would be on rental property in slow and steady growth areas around the country that have never seen a boom.

You cannot expect crazy appreciation in these markets, but you can buy rental property that will cash flow nicely and provide depreciation at a much greater benefit than So Cal due to the dwelling value (vs the land)

With 25% down payment, a 5% appreciation rate offers a 20% (gross)return on investment, even if it’s a break even on cash flow.

There are many parts of the country that offer affordable units.
There is always a risk, but I’d be happier in rentals than in stocks for the long term.

The stock market is nothing more than gambling and a legalized pyramid scheme, with winners and losers.

[bsrsharma]

HLS, Which parts of the country do you prefer and are there reasons, besides prices & rents, for your preferences? How do you feel being a long distance property owner?

[bsrsharma]

HLS, Which parts of the country do you prefer and are there reasons, besides prices & rents, for your preferences? How do you feel being a long distance property owner?

[surveyor]

index funds

If an investor does not know a whole lot about investing and is not willing to put up with the work/research/reading necessary to learn, I would recommend broadly based index funds (like the vanguard VFINX). The stock market will fall sometime but if you spread your risk over time you should come out ahead. Investing is by its own nature risky. Use the 401k/IRA’s to minimize your taxes, invest in the index funds, and then live your life. There are too many things to do instead of living and dying on the stock market.

While I would certainly recommend real estate investing, it too takes as much work as picking individual stocks and has many pitfalls. Again, if you are not willing to devote your time to it, you are better off just sticking to investing basics. Once you can handle the basics, then you can stretch yourself out some more and then go stock picking and all that.

Finally, in order to answer your question, I have been investing in metals and mining stocks, vanguard’s energy fund, and index funds. It has done somewhat well (one stock I chose, BHP, took off like a rocket the past year). From what I’ve been hearing and seeing, the China index funds, a lot of international funds (like the Brazil ETF) have took off and done well. Still, more than half of my portfolio is in VFINX and I am cashing out a lot of my funds to build up my VFINX (my time frame is 20 years). My “play” money only takes up about 20% of my whole portfolio.

So… basically metals/mining, China, Brazil, and energy. However, these stocks are VERY volatile. They tend to swing 1% to 5% over the course of a week. So they aren’t safe.

Remember, just stick to the basics and let it go. It’s fun to see money grow, but it will go on without you and it’s best to let it grow and not obsess over it.

As always, take this advice with a grain of salt and note that the person who runs this site is able to answer your questions better…

[surveyor]

index funds

If an investor does not know a whole lot about investing and is not willing to put up with the work/research/reading necessary to learn, I would recommend broadly based index funds (like the vanguard VFINX). The stock market will fall sometime but if you spread your risk over time you should come out ahead. Investing is by its own nature risky. Use the 401k/IRA’s to minimize your taxes, invest in the index funds, and then live your life. There are too many things to do instead of living and dying on the stock market.

While I would certainly recommend real estate investing, it too takes as much work as picking individual stocks and has many pitfalls. Again, if you are not willing to devote your time to it, you are better off just sticking to investing basics. Once you can handle the basics, then you can stretch yourself out some more and then go stock picking and all that.

Finally, in order to answer your question, I have been investing in metals and mining stocks, vanguard’s energy fund, and index funds. It has done somewhat well (one stock I chose, BHP, took off like a rocket the past year). From what I’ve been hearing and seeing, the China index funds, a lot of international funds (like the Brazil ETF) have took off and done well. Still, more than half of my portfolio is in VFINX and I am cashing out a lot of my funds to build up my VFINX (my time frame is 20 years). My “play” money only takes up about 20% of my whole portfolio.

So… basically metals/mining, China, Brazil, and energy. However, these stocks are VERY volatile. They tend to swing 1% to 5% over the course of a week. So they aren’t safe.

Remember, just stick to the basics and let it go. It’s fun to see money grow, but it will go on without you and it’s best to let it grow and not obsess over it.

As always, take this advice with a grain of salt and note that the person who runs this site is able to answer your questions better…

[SD Realtor]

BSR you may want to point that question to people like Surveyor… Surveyor has keen insights as to rental property locations in the country. I agree with the assessment HLS gave… finding the location is where there is work.

SD Realtor

[SD Realtor]

BSR you may want to point that question to people like Surveyor… Surveyor has keen insights as to rental property locations in the country. I agree with the assessment HLS gave… finding the location is where there is work.

SD Realtor

[HLS]

Being an absentee property owner definitely isn’t for everyone.

I suggest using a professional property manager who knows the laws and regulations, rather than a friend, relative or similar, which can only lead to major headaches.
However, I have heard about pro’s being terrible and even going broke.

Having a PM is just like having an employee. Many people aren’t comfortable with this. Of course there can be headaches. Yes, it costs money.

It is hard to pick a perfect time to get in to the perfect area. Many people chase performance, just like buying last years best mutual fund.

I had a call recently about an area in Texas that they were interested in and I asked her why “that area”..
She had read an article in a magazine about THAT being the place to be…. that was sooo last year.
It’s like the people who get stock advice from Jim Cramer.
(Beyond me, but plenty of people just cannot think on their own, relying on “analysts comments” to buy and sell stocks)

Another caller a few days ago told me that he bought two houses in Texas a year ago, had a terrible property manager, couldn’t rent the houses, was losing money, and they were worth less than he had paid.

As far as areas, I believe that there are literally hundreds that make sense for people with a long term horizon and realistic expectations.

If anyone is serious about out of area property ownership, below are a few ideas.

One of my “crazy” suggestions would to be within an hour of an airport that Southwest Airlines services.
I’m comfortable that they have invested a fair amount of time and money investigating before opening a station in a market. OR another similar large retailer.

I know one area that wanted a Home Depot for years, but HD wouldn’t open in their market until they reached 50,000+,
and they were in the high 40,000…..
Once they reached a solid 50,000, HD opened and then Lowe’s did too, right down the street. They now have two huge Walmarts in the area too.

NEW markets for Costco, Sam’s Club, Wal Marts, etc is like getting free top notch market analysis.
Of course it’s nice to know sooner rather than later. Conversations with a local commercial property agent can yield lots of information. Ask pointed questions about what you want to know, and listen to the answers. It’s a wealth of information.

Another great spot is a local coffee shop with old timers who are the regulars. You don’t need to be a genius to walk in to the joint and see who they are. They KNOW what’s going on around town.
I wouldn’t be looking for information at the local tavern or from the young well dressed guy/gal who is driving a BMW.
(I’m probably looking for a guy that drives an OLD beat up truck)

I’d say that you need to visit and see the area. It’s not hard to see growth, even if you’ve never been there before.
Many areas just have a good feel to them, while some areas are just depressing. Like looking for your first house, the more you see, the more you will know what you like and what you don’t.

A guy recently told me that he has made hundreds of thousands of dollars owning homes out of state that he has never seen. I suppose it’s possible, but not something that I would recommend.

Middle of nowhere might offer a cheap property on 10 acres, but with a local population of 300, it can be hard to find tenants. If the area isn’t growing, you might be able to make money, but it’s going to be a struggle.

I’ve recently looked at parts of Utah and Ohio that are just dead, very little happening there. Other parts look very interesting, and not always “in town”.
Newer suburb areas often offer strong growth potential.

A great website for loads of details on ANY city, large or small is http://www.city-data.com

[HLS]

Being an absentee property owner definitely isn’t for everyone.

I suggest using a professional property manager who knows the laws and regulations, rather than a friend, relative or similar, which can only lead to major headaches.
However, I have heard about pro’s being terrible and even going broke.

Having a PM is just like having an employee. Many people aren’t comfortable with this. Of course there can be headaches. Yes, it costs money.

It is hard to pick a perfect time to get in to the perfect area. Many people chase performance, just like buying last years best mutual fund.

I had a call recently about an area in Texas that they were interested in and I asked her why “that area”..
She had read an article in a magazine about THAT being the place to be…. that was sooo last year.
It’s like the people who get stock advice from Jim Cramer.
(Beyond me, but plenty of people just cannot think on their own, relying on “analysts comments” to buy and sell stocks)

Another caller a few days ago told me that he bought two houses in Texas a year ago, had a terrible property manager, couldn’t rent the houses, was losing money, and they were worth less than he had paid.

As far as areas, I believe that there are literally hundreds that make sense for people with a long term horizon and realistic expectations.

If anyone is serious about out of area property ownership, below are a few ideas.

One of my “crazy” suggestions would to be within an hour of an airport that Southwest Airlines services.
I’m comfortable that they have invested a fair amount of time and money investigating before opening a station in a market. OR another similar large retailer.

I know one area that wanted a Home Depot for years, but HD wouldn’t open in their market until they reached 50,000+,
and they were in the high 40,000…..
Once they reached a solid 50,000, HD opened and then Lowe’s did too, right down the street. They now have two huge Walmarts in the area too.

NEW markets for Costco, Sam’s Club, Wal Marts, etc is like getting free top notch market analysis.
Of course it’s nice to know sooner rather than later. Conversations with a local commercial property agent can yield lots of information. Ask pointed questions about what you want to know, and listen to the answers. It’s a wealth of information.

Another great spot is a local coffee shop with old timers who are the regulars. You don’t need to be a genius to walk in to the joint and see who they are. They KNOW what’s going on around town.
I wouldn’t be looking for information at the local tavern or from the young well dressed guy/gal who is driving a BMW.
(I’m probably looking for a guy that drives an OLD beat up truck)

I’d say that you need to visit and see the area. It’s not hard to see growth, even if you’ve never been there before.
Many areas just have a good feel to them, while some areas are just depressing. Like looking for your first house, the more you see, the more you will know what you like and what you don’t.

A guy recently told me that he has made hundreds of thousands of dollars owning homes out of state that he has never seen. I suppose it’s possible, but not something that I would recommend.

Middle of nowhere might offer a cheap property on 10 acres, but with a local population of 300, it can be hard to find tenants. If the area isn’t growing, you might be able to make money, but it’s going to be a struggle.

I’ve recently looked at parts of Utah and Ohio that are just dead, very little happening there. Other parts look very interesting, and not always “in town”.
Newer suburb areas often offer strong growth potential.

A great website for loads of details on ANY city, large or small is http://www.city-data.com

[HLS]

The stock market is fine for many people. There are millions of sheep “investing” via deductions from every paycheck, because it’s what they have been told is the right thing to do. It’s mindless.

The govt is behind this propaganda, wanting to create an alternative to SSI. I don’t think it will be long before minimum drawing age will be 70, proving that 70 IS the new 62.

Unless you are lucky enough to ride a rocketship, (which most people aren’t) the stock market is simply based on the greater fool theory, similar to housing except that while virtually ALL homes have gone up over long periods of time,
ALL stocks have NOT gone up over time.

I also don’t believe that 100% invested in stocks can compete with 20% invested in real estate and the return from leverage on the 20%.

For most people, they will be late to the party for the stock/industry du jour, and will get in near the top just in time for the bust.
Here’s an example of a stock up 750% THIS YEAR,
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=drys&sid=0&o_symb=drys&freq=1&time=8&x=45&y=15
I wouldn’t be buying now, but plenty of people love this type of stock.

There are no guarantees, and thankfully everone isn’t on the same bus.

[HLS]

The stock market is fine for many people. There are millions of sheep “investing” via deductions from every paycheck, because it’s what they have been told is the right thing to do. It’s mindless.

The govt is behind this propaganda, wanting to create an alternative to SSI. I don’t think it will be long before minimum drawing age will be 70, proving that 70 IS the new 62.

Unless you are lucky enough to ride a rocketship, (which most people aren’t) the stock market is simply based on the greater fool theory, similar to housing except that while virtually ALL homes have gone up over long periods of time,
ALL stocks have NOT gone up over time.

I also don’t believe that 100% invested in stocks can compete with 20% invested in real estate and the return from leverage on the 20%.

For most people, they will be late to the party for the stock/industry du jour, and will get in near the top just in time for the bust.
Here’s an example of a stock up 750% THIS YEAR,
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=drys&sid=0&o_symb=drys&freq=1&time=8&x=45&y=15
I wouldn’t be buying now, but plenty of people love this type of stock.

There are no guarantees, and thankfully everone isn’t on the same bus.

[surveyor]

BSR:

I think 4plexowner and I went through this whole discussion on the pros and cons of out-of-state real estate investing awhile back. Suffice it to say that there are many aspects that cannot just be posted in a website and that you really have to do your homework, research, time, and probably an important part, patience.

Different real estate markets act in different ways. If you want high appreciation, there are the southern states – North Carolina, South Carolina, Georgia, Texas. These places are going up on the real estate cycle (although North Carolina might be near or at its peak). These places, however, do not cash flow or at least do not do it well. I have a property in South Carolina that basically cash flows, but that is because it is on an interest only loan. Still, it is doing well, has had a few vacancies, but is fully rented now.

If you are looking for more cash flow and modest to low appreciation, you will have to look at Idaho, Alabama, parts of Louisiana, Tennessee, Missouri.

Typically the areas that are doing well right now are areas where people are moving to in mass droves. No brain science there. Also, every other month, money.cnn.com will have a real estate article about where the best places to live are or where the cheapest real estate prices are, etc. I hang the listing on a wall and see if there are any good properties in those areas.

I have a personal contact in Utah so I know that market isn’t doing particularly well right now. It hit its peak and is going down. I am avoiding Utah right now.

Some of the rules that I follow however regarding real estate investing in these markets:

1) Invest only in major cities or at least close suburbs
2) Try try try to buy a four plex or more. Most of the problems real estate is having right now is in SFRs and condos. Also, buying multi-units allows you to use economies of scale and lower per-unit costs. Also, most real estate action is SFR/condos or high end commercial properties. There is less competition for properties with four units and 20 units (too small for big companies, and too large for the small fry).
3) Use ROE calculation to get properties that return 25% to 30% or more.
4) If using borrowed money as downpayment, try to get Cash on Cash of (interest rate + 4%).
5) Keep per unit cost down, under $175k (many places have per unit costs of around $30k, which is terrific, to $70k or more, which is where it starts to get expensive).
6) Avoid places where there are a lot of investors. Of the places I listed above, Missouri fits that designation (you can still get decent numbers from it though and it hasn’t gone to a bubble like Arizona has).
7) Avoid California, Florida, Arizona, New Jersey, New York, Nevada (and other bubble areas).
8) Use loopnet.com to find multiunits in various locations in the country.

There are more and I could go on and on and on.

Regarding property management, I have three property managers and they have to varying degrees done well. One probably required more management than anything, but it is very necessary to use property managers when doing out-of-state investing, but it is also necessary because you want to spend your time researching properties and not dealing with tenant problems. The more you deal with the tenant, the less patience you have for real estate investing in general. Still, I was able to choose good property managers and they have not given me truly bad headaches. Of course it helps to choose good property managers, but also to choose good properties that minimize problems.

Despite many comments here to the contrary, I do believe real estate on a percentage basis returns better and makes your money work harder than the stock market. I invest in real estate not because the dollar is going down or it’s not a bubble or any other reason that has popped up recently but because it creates more opportunity for wealth than any other investment vehicle.

Still, I do invest in both the stock market and real estate market but that’s more to diversify and lower my taxes than for any other reason. If nothing else, seeing your taxes go down to zero because of real estate is a powerful enough reason to consider real estate investing.

But like I said, real estate investing is more like individual stock picking and it does require more work than the stock market. Ultimately, however, time and demographics are on your side. There are more people coming and being born into the U.S. and they need a place to stay. It is difficult and expensive to build a house. It’s difficult to get a loan to buy a house (supposedly). And now people are being foreclosed and they have to find a place to stay. To me, that means investment real estate has a lot of potential.

[surveyor]

BSR:

I think 4plexowner and I went through this whole discussion on the pros and cons of out-of-state real estate investing awhile back. Suffice it to say that there are many aspects that cannot just be posted in a website and that you really have to do your homework, research, time, and probably an important part, patience.

Different real estate markets act in different ways. If you want high appreciation, there are the southern states – North Carolina, South Carolina, Georgia, Texas. These places are going up on the real estate cycle (although North Carolina might be near or at its peak). These places, however, do not cash flow or at least do not do it well. I have a property in South Carolina that basically cash flows, but that is because it is on an interest only loan. Still, it is doing well, has had a few vacancies, but is fully rented now.

If you are looking for more cash flow and modest to low appreciation, you will have to look at Idaho, Alabama, parts of Louisiana, Tennessee, Missouri.

Typically the areas that are doing well right now are areas where people are moving to in mass droves. No brain science there. Also, every other month, money.cnn.com will have a real estate article about where the best places to live are or where the cheapest real estate prices are, etc. I hang the listing on a wall and see if there are any good properties in those areas.

I have a personal contact in Utah so I know that market isn’t doing particularly well right now. It hit its peak and is going down. I am avoiding Utah right now.

Some of the rules that I follow however regarding real estate investing in these markets:

1) Invest only in major cities or at least close suburbs
2) Try try try to buy a four plex or more. Most of the problems real estate is having right now is in SFRs and condos. Also, buying multi-units allows you to use economies of scale and lower per-unit costs. Also, most real estate action is SFR/condos or high end commercial properties. There is less competition for properties with four units and 20 units (too small for big companies, and too large for the small fry).
3) Use ROE calculation to get properties that return 25% to 30% or more.
4) If using borrowed money as downpayment, try to get Cash on Cash of (interest rate + 4%).
5) Keep per unit cost down, under $175k (many places have per unit costs of around $30k, which is terrific, to $70k or more, which is where it starts to get expensive).
6) Avoid places where there are a lot of investors. Of the places I listed above, Missouri fits that designation (you can still get decent numbers from it though and it hasn’t gone to a bubble like Arizona has).
7) Avoid California, Florida, Arizona, New Jersey, New York, Nevada (and other bubble areas).
8) Use loopnet.com to find multiunits in various locations in the country.

There are more and I could go on and on and on.

Regarding property management, I have three property managers and they have to varying degrees done well. One probably required more management than anything, but it is very necessary to use property managers when doing out-of-state investing, but it is also necessary because you want to spend your time researching properties and not dealing with tenant problems. The more you deal with the tenant, the less patience you have for real estate investing in general. Still, I was able to choose good property managers and they have not given me truly bad headaches. Of course it helps to choose good property managers, but also to choose good properties that minimize problems.

Despite many comments here to the contrary, I do believe real estate on a percentage basis returns better and makes your money work harder than the stock market. I invest in real estate not because the dollar is going down or it’s not a bubble or any other reason that has popped up recently but because it creates more opportunity for wealth than any other investment vehicle.

Still, I do invest in both the stock market and real estate market but that’s more to diversify and lower my taxes than for any other reason. If nothing else, seeing your taxes go down to zero because of real estate is a powerful enough reason to consider real estate investing.

But like I said, real estate investing is more like individual stock picking and it does require more work than the stock market. Ultimately, however, time and demographics are on your side. There are more people coming and being born into the U.S. and they need a place to stay. It is difficult and expensive to build a house. It’s difficult to get a loan to buy a house (supposedly). And now people are being foreclosed and they have to find a place to stay. To me, that means investment real estate has a lot of potential.

[Author]

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