Pinoy New Era Of Investment

Stocks? Bonds? Real Estate? Where should you put your money?

The answer, of course, will depend on your capital, your risk appetite, and your goals. But for investors who still have a reasonable amount of runway in the lead of them before they hit retirement, most comparisons fail to emphasize the true benefits of investing in real estate.

Over the long run, the stock market has yielded great returns From 1987 to the present the S&P 500 has appreciated at an average rate of almost 10% per annum, and the NASDAQ has averaged over 11% Over the same period the let assume average home price has increased at around 5.6 percent.

This is the comparison of one dollar invested in real estate in 1987 would be worth around $2.84 today. That same dollar would be worth $5.74 or $7.31 were it invested in the S&P 500 or the NASDAQ, respectively. But this is the whole picture

Real Estate vs the Stock Market

We’ll get to leverage in a moment – that’s where these conversations predictably lead But the first thing to consider is volatility!!!...

We know that stocks yielded an average of 10% to 11% over the past twenty years or so, but how did we get from point A to point B? Investors will remember the period from 1999 to 2002 which were rough years for the stock market From its peak in August of 2000 to the bottom in September of 2002 the S&P 500 lost over 40 percent of its value. Over roughly the same period the NASDAQ declined by a massive 75 percent (same scenario recently about the stock market). Eventually the market managed to get away from these depressions, but this was a hard-hitting period for investors.


Leverage?

Simply put a dollar invested in stocks buys you one dollar’s worth of stock .But that’s not the way we buy real estate. A typical investor might put $20,000 down to buy a $100,000 home. So instead of getting one dollar’s worth of house for your one dollar investment you’re getting control over five dollars worth of house.

That’s 5:1 leverage One buck from you, and four bucks from the bank.

That $5 invested in the housing market in 1987 would be worth around $14.18 today. Assuming that you hadn’t paid down any of the mortgage your $1 investment would be worth $10.18. Compare that against the $5.74 that your S&P 500 investment would be worth or the $7.31 that your NASDAQ would have netted.



The upside...

I’ve made some simplifications, but overall they’re conservative ones:

· Dividends and rental cashflow. left both out of the analysis. But any property that you’ve had for twenty years will be raking it in cashflow-wise, whereas corporate dividends these days are pretty skinny. Real Estate more advantage on this.

· Paying down the mortgage Back in the late '80s interest rates were floating around 10 or 12% . At this rate a standard fixed 30 year mortgage would have paid off around 30% of its principal balance over twenty years. That’s another advantage that I haven’t included in the comparison that’s another advantage of Real Estate.

Let see also the Philippines Stock Market on our portfolio for analysis, just put the above graph for the real estate trend.



Timing can be important and now isn't the best time to be jumping into the market, but over the long term it's hard to disagree that real estate doesn't have a place in your portfolio.

THANKS!!!


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