Investment Newsletter for the End of October, 2019

The market this month is up about 130 points. Added to the upward movements that we have already experienced this year means the Dow is up about 3500 points. Despite the volatility, if you had invested at the beginning of the year and endured the volatility, you would have made a lot of money. In today’s newsletter, we are going to talk about two topics.

The first topic is diversification. Diversification is essentially the expression “do not put all your eggs in one basket”. Unfortunately, no asset goes up in value forever. No matter what it is, for every rise there will eventually be a crash. Thankfully, not everything rises and crashes at the same time. That is the value of investing in multiple things. Ideally when one thing crashes, another thing rises and the roller coaster is much smoother. No matter how carefully you invest, chances are you will invest money into something that will lose value. If you are invested in many things, that one thing losing value won’t hurt your portfolio by much. Diversification can be done across asset classes (stocks, real estate, etc.), across countries (United States, England, etc.) across industries (healthcare, defense, etc.) etc.

The second topic will be real estate. The usage of real estate can be a valuable addition to a portfolio for it rises and falls in a different way from traditional stocks. There are multiple ways to invest it. The classic way of investing is by buying a property. The advantage of this approach is that you can directly affect the value of the property via your own actions (painting it, repairing things, etc.) and there could be some tax advantages. The disadvantages are twofold. First, is that it is very capital intensive. As a result of being so expensive, it is unlikely you can achieve diversification in your real estate portfolio. You likely can only afford a few properties. Those properties you do have are likely to be in one geographic area. Second, property is not liquid. It takes weeks or months to turn the property into cash. There will be a 6% or 7% sales commission plus other closing costs. Finally, you cannot tell exactly what the property is worth at any time.

Another way of investing in real estate is by investing in a REIT. A REIT is like an ETF or traditional mutual fund. It is a collection of properties, managed by someone else, that you can buy and sell shares of. The main advantage of a REIT is that you get diversification due to many properties being owned and it is much cheaper to get started. The commissions in or out are minimal. I can tell you at 11:15 am, for example, to the penny what your REIT is worth.

If you have any questions about how you are invested, please call at any time. We sincerely hope you got value from this newsletter. We appreciate your business and trust.

Dan and Eli

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

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

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