At our exchangors meeting this week, investment guru Furman Tinon was telling us the story he saw in Money magazine back in 2001. It was about an individual who worked for Enron (of course, all of that is a different story). His 401k was devastated as a result of the corporate meltdown, dropping from $100 per share to around 35 cents per share in value.
I read stories every day of companies with huge losses in a roller-coaster stock market; Ford already has noted that its pension plan is in trouble, and this week noted it posted a fourth-quarter net loss of $2.75 billion, or $1.30 per share, compared with a loss of $5.63 billion, or $2.98 per share, a year earlier.billion for the quarter. The company is also forecasting a net loss for the full year 2008 amid fears of a weakening U.S. economy. Now I think Ford builds a great automobile. One of my cars is a Ford. But looking at that, one has to be honest and ask, "why would I ever invest in Ford?"
I'm not trying to pick on Ford. It's just that their news this week makes a good example. As I have stated on earlier posts, when you invest in stocks, as a shareholder you are paid AFTER all the bills and everyone else is paid, assuming there is a profit.
When you compare the uncertainty of the stock market, and its average investor, with the stability and growth of an individual's portfolio when he or she owns four, or seven, or even 10 investment properties -- the difference is significant. If your 401k drops to nothing, or in a more realistic sense, stagnates and does not grow, or even declines in value, you've got a problem. But real estate doesn't go away. You still collect rent from your office tenants, or multifamily residents. And I haven't even discussed the voluminous tax advantages that are not available to corporate shareholders.
Commercial/investment real estate empowers you . . . it puts you in position to protect your wealth. And if there is inflation, you have wealth forced upon you. Not a bad place to be, actually.