Is real estate safer than stocks?

In this blog I will list some of my top Quora answers for the last few days, which focused on many interesting subjects.

In the answers shared today I focused on:

  1. What do you need to pay attention to when investing in stocks?
  2. Is stocks or real estate safer?
  3. What are the five things to pay attention to if you want to become more successful?

If you want me to answer any questions on Quora or YouTube, or you are looking to invest, don’t hesitate to contact me or use the WhatsApp function below.

What should I pay attention to when investing in stocks?

Perhaps the opposite of what you assume. Many people have heard this quote from Woody Allen:

Few people consider how it applies to investing, but 80% of investing success is just showing up.

That means:

  • Getting started
  • Investing every month – ideally automating it
  • Never panicking when markets fall. That is showing up, leaving, and then showing back up again! Be consistent
  • Reinvest dividends

Being a good investor isn’t always about being active.

Remember these incredible statistics:

  • Dead people beat the living in investing, even most experts. Which accounts do best when it comes to the living? Accounts where people have forgotten about it. You know, the kind of accounts where your mum and dad set you up with something decades ago, and you suddenly get an email out of the blue.
  • The previous point happens for a simple reason. People who just stay invested and aren’t emotional, do better in investing
  • 35% of DIY investors were estimated to have panic sold between February and May this year, with another 15%+ partially selling or not putting more in.
  • This year’s market crash isn’t an exception. Vanguard said net inflows (buying) is highest during rising markets like in the late 90s, and net outflows (selling) is highest during moments like 2008–2009 and earlier this year. That is buying high and selling low

Finally, remember this

What is the biggest indication of wealth at retirement? Is it:

  • Your income or job?
  • Total percentage returns?
  • What you invest in?
  • Did you see trends coming in advance like tech stocks?
  • Did you inherit money?

No, the biggest indication is how much you invest and for how long. If you invest more, and for longer, you will have a greater amount at the end.

That sounds obvious but many people forget that getting 7% for 50 years (that is 3%-4% every year below what the S&P500 has historically given after dividends) is superior to getting 16% for 9 years (what the S&P500 did in say the 1990s).

Somebody that invests $500 for 50 years getting 7% will have millions more than another person that invests $2,000 a month for 10 years and gets 16%, despite 7% being a below-average stock market return.

This means that your spending habits and how soon you start investing is key. Of course, that doesn’t mean being a Scrooge and never enjoying your life.

Is real estate safer than stocks?

Before writing this answer, I second Steven’s answer below when he cites the following risks with real estate:

  • Higher cost of holding it
  • Liquidity – ability to find a buyer
  • Time costs and hassles with property
  • Leverage/debt. It does increase returns for property if used well, but of course it is risky, in the same way a leveraged ETF is more risky than a non-leverage one.

With that being said, we need to make some caveats. Is owning one stock safer than owning one property?

If you own one small-cap property and have one home as a primary residence, then the home is safer.

The reason is simple. Even if the property price does badly, you aren’t going to lose 100%, because you would need to pay for rent anyway.

Even if you compare owning just one small cap stock to owning one rental property, a strong argument can be made that the property is safer, if it is in a good location.

Yet it is extremely foolish to have a one-stock portfolio. The benefits of the stock and bond market is that you can own the whole market cheaply.

For example, the S&P500 has 500 stocks in it. The total stock market exchange or total international stock market thousands.

In that case, of course owning 2–3 indexes, and therefore gaining access to thousands of firms, is safer than owning a few properties in one location.

You are internationally and domestically diversified and not relying on a few firms.

Even if some firms go bust (like Lehman in 2008) they will just be knocked off the index.

We also need to focus on time. If you are going to own the S&P500 for 1 year, it isn’t that safe.

For 15, 20, 30 40 years? Very safe. Now let’s say you own the S&P500 + an international index + a bond index?

Exceptionally safe. Even just stocks and bonds is very safe:

I have met loads of people who have lost money from individual stocks. I have met loads of people who have lost money with property.

I have also met loads of people who have lost money from buying indexes if they panic sell during a crash.

A few people have lost money from “index picking” – in other words picking just one index like the Japanese Nikkei at the peak.

I have never met anybody who has lost money from buying and holding 3–4 major international indexes and holding for decades.

I am not saying it is impossible for something to happen because it never has in the past.

Just because MSCI World, the Dow Jones, the S&P500 and most major indexes have always gone up long-term, doesn’t mean the next 200 years will be the same as the last 200 years for stock markets, even though I think it is likely they will go up.

Merely I am saying you shouldn’t ignore a strategy that has had a 100% historical record of success in not losing money.

Holding onto 3–4 indexes, reinvesting the dividends, investing monthly to lower the risk and rebalancing is much less risky than owning one property, one or two stocks or leaving your money in the bank.

The media just add to this sense that markets are “dangerous”. Every time stocks hit records, it is casually mentioned.

Every time there is a crash it is often the main news headline, usually accompanied by a balding middle-aged man looking sad, surrounded by a sea of red lines showing stocks going down:

If you want very low-risk real estate you have only two options. Be rich enough to be able to buy many types of properties in countless countries and sectors (commercial and residency real estate), or buy a global REITs index.

If you want to take a risk, it is true that real estate in some emerging markets can make you good money, but it is much more high-risk/high gain than people assume.

There is also a big difference between being a professional real estate developer or investor and the average investor.

What five things have given you the greatest success in life?

Here are the top five that come to mind:

  1. Taking calculated risks and reading more on what risk actually is
  • There is an expression that I was taught as a child in the UK and some other countries- you can’t win the lottery if you don’t buy the ticket, or you can’t win the raffle. It doesn’t literally mean that we should buy lottery tickets. Merely, you need to take some calculated risks
  • And yet society, our parents, friends, the media and others often encourage us to do the opposite and play it safe.
  • It is often assume that more risk gives you a better chance of succeeding, which is true, in return for more risk, as per the diagram below. Yet what is seldom mentioned is that sometimes it is more risky to do nothing than to do something. Moreover, taking risks when you are young enough to do so isn’t really much of a risk. You won’t care at 50 that you decided to start your own business at 22 or emigrate for a better opportunity.
  • Linked to the last point is investing money vs saving it. Doing nothing (cash in the bank) isn’t less risky than prudent long-term investing, if you are long-term enough.
  • Not linking volatility and risk. They are two different things in many situations. A person who is a civil servant has a non-volatile income compared to a business owner with five streams of income. Yet it is clearly riskier to have just one source of income.
  • This one is vital as it includes things like investing rather than saving, together with business and life tips.

2. Leveraging technology

  • Learning new skills and seeing university as the start of the learning process would definitely be up there in the list of important things to do in life.
  • Learning about technology years after university was worth it for me.
  • We are in a different world now. Historically, you needed to hire loads of people to grow a business. Those days are gone.
  • In any area of life, leveraging technology allows you to do things you can’t do, even if you could work 23 hours a day and sleep for 1 hour.
  • Working smart is just as important as working hard. Working hard is just one part of that.
  • Leverage is important in general. Leveraging time by investing from a young age to take account of compound interest would be another example.

3. Not being influenced by what is normal

  • If something is tried and tested, that is great. The problem is though, once something becomes tired and tested, everybody starts using it, and it becomes less useful.
  • For example, the first people who used cold calling probably made a fortune. Then everybody started using it, and it got a bad reputation. The same with many other things in life or business. The key is to sometimes get ahead of the trends/waves, before everybody starts using it
  • The best way to do that is to play the numbers game. Try out loads of different ideas, read a lot and speak to other successful people, and you can get ahead of trends.
  • Yet once you get ahead of trends, other people will eventually copy, so you need to think how to get onto new trends or keep your advantage
  • Most people don’t want to put themselves out there in general, but especially if it isn’t normal yet to do it.

4. Getting rid of negative influences and people – learning from successful people instead

  • The media, friends, some family members and even our own negative voices can grad us down. It is important to focus on more positive influences.
  • For example, many negative people will jump to the conclusion that somebody else is “winning” because they are cheating. A sensible and optimistic person wouldn’t hate them for their success, and instead try to learn from them – maybe even ask them for a coffee and try to get ideas from them.

5. Expanding ambitions over time

  • Many people get complacent or arrogant after success, or just stop trying as hard. This can lead to problems
  • One way to avoid this problem is keep scaling your ambitions, so you are motivated enough to keep going

Further Reading

In the article below, I spoke about:

  1. What should you do to invest successfully, and for that matter, see improvements in your financial life? It isn’t all about big sudden improvements either. The answer below looks at how incremental improvements makes a huge difference long-term.
  2. What happens once people have money and power? What motivates them? Of course it depends on the person, but I consider some of the main reasons some wealthy people give more money to charity as they get older.
  3. What percentage of your wealth should be invested in “risky” assets, if any, and how do I define risk? Too many times people confuse volatility as risk. 
  4. Was investing just “created” as some kind of conspiracy to make the rich get richer? I tackle this ridiculous suggestion in my last answer.

To read more, click below

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