Investment Newsletter for the end of August, 2020

The stock market is much higher in August. The Dow is up about 2,000 points or 7.5%. The rising stock market means that investors are optimistic about the future state of the economy. Your portfolios all did well.

The topic of this newsletter will be real estate. In particular we will talk about misconceptions and how we place it into a portfolio. Several common misconceptions that we encounter regarding real estate is that real estate is less risky than the stock market.

Real estate is not less risky than the stock market. Both stocks and real estate can lose value. Real estate can lose value to changes in its surroundings, the general economy, physical destruction of the property, etc. The values of stock and real estate fluctuate just as much as each other. The only difference is that with privately held real estate, it is harder to find exact price quotes. Publicly held real estate such as a REIT can fluctuate less than an average stock but that is due to its high dividend paying legal requirements. A high dividend paying stock is extremely comparable in terms of fluctuation. Privately held real estate has an addition as it extremely high cost per unit means that it is difficult for an average person to diversify their holdings. In contrast a share of stock is usually cheaper.

We treat real estate like any other asset class such as stocks and bonds. It goes up and down, but at different times than other asset classes do. The roller coasters do not all go up and down at the same time, which means that combining multiple asset classes within a portfolio will lower the risk of that portfolio. Obviously, there are times that everything will go at once due to a massive event affecting everything such as the tower getting hit on 9/11. The vast majority of the time, diversification across asset classes will lead to lower risk. As real estate has gone up tremendously over the last decade, you might want to have all your money invested in real estate. We do not believe that to be a good idea. We know that real estate values have gone up in the past, but that does not indicate that they will go up in the future. Every asset class falls eventually. When that happens eventually for real estate, diversification will keep your capital preserved.

If you have any questions about our opinions on real estate or how we fit it into a portfolio, please call at any time. We sincerely hope you got value from this newsletter. We appreciate your business and trust.


Daniel and Eli

As we’re writing these to help our readers, we would be very appreciative of any input in regards to what we should write next. If you want us to write about a particular topic, please contact me. Please contact me if you would like to submit a post to our blog.

If anything that we mentioned above interests you, please consider downloading my free e-book. The book contains our thoughts on investment management and some information that we think everyone should know. You can also download it below.

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