If you had $10,000 laying around...

[rondocap]

Originally Posted by Perfectlap

^It's not just mutual fund managers, it's every kind of investment manager. I've seen studies that hedge funds (as a class) keep 98% of the profits they make with their investors money.
And that's because so few can beat the S&P over any significant period of time and simply shut down the fund. But they become fabulously wealthy collecting that cut of your initial investment win or lose. And private equity fund managers have the best deal of all: they get to keep that management fee even if they decide not to allocate a dime of your money towards any PE investment, getting rich for doing nothing! And if they lose any money they can simply walk away from any new debt they created (and used to pay themselves big salaries) thanks to the bankruptcy laws and the rule of OPP (other people's money).

To the OP, when people say "10K is not a lot of money" think abou this.
in 1965 $1,355 would be the equivalent of $10K today. Had you invested that $1,355 in the S&P, today you'd have ~$51K. Do you know how many seniors today can not write a check for $600? USA Today did a story on just that and the number is somewhere in the high 90% range (staggering numbers of seniors still living pay check to pay check after 65 -- I blame the costly pipe dream of home ownership).


Had you invested that $1,355 in Berkshire?

$14,000,000.

^ Timing is everything... but I'll settle for $51K if that's all I can get.

Rarely did a huge pile of money not start as a very very small one. If you wait until you have "a lot of money" to start investing in your future you're going to miss one boat after another. You'll never have good timing if you're on the sidelines.

I agree with you on The home ownership pipedream. What made you to reach that conclusion? I'm just curious, because I kind of felt the same way. I'd like to hear more about it.

[Topless]

I completely disagree with PL re: home ownership. It is only a pipedream if you are looking for short term gain or if your eyes are bigger than your wallet. Long term, real estate is a win and should be in the mix along with stocks for a true diversified investment strategy IMHO.

Warren Buffett agrees:
Warren Buffett - Investing in U.S. Real Estate - YouTube

http://www.bloomberg.com/news/2011-02-28/buffett-says-buying-his-home-for-31-500-was-third-best-investment-he-made.html

[Perfectlap]

Originally Posted by Topless

I completely disagree with PL re: home ownership. It is only a pipedream if you are looking for short term gain or if your eyes are bigger than your wallet. Long term, real estate is a win and should be in the mix along with stocks for a true diversified investment strategy IMHO.

Warren Buffett agrees:Warren Buffett - Investing in U.S. Real Estate - YouTube

Buffett Says Buying His Home for $31,500 Was Third-Best Investment He Made - Bloomberg

If Warren Buffett put the $31K he used to buy his first home into shares of his own company instead, he'd have $42 million today... That house is not worth $42 million...

But that's why buying the home was such a wonderful investment. $42 million is 0.069% of his $60 billion net-worth. He could afford not to chase a better return elsewhere.

[Topless]

Originally Posted by Perfectlap

If Warren Buffett put the $31K he used to buy his first home into shares of his own company instead, he'd have $42 million today... That house is not worth $42 million...

Another fallacious strawman argument PL. He has to live somewhere and the total costs associated with owning his home were lower over time than the total costs associated with renting an equivalent property over the same period. This freed up more cash to invest wisely in Berkshire.

So unless your mom is willing to take care of your housing by giving your old room back, buying beats renting long term. Renting beats buying short term. It really is that simple. Only the time window changes based on market fluctuations.

[stephen wilson]

Also, the odds of an investor picking a stock with that kind or return, except in hindsite, is about nil.

[Perfectlap]

Originally Posted by stephen wilson

Also, the odds of an investor picking a stock with that kind or return, except in hindsite, is about nil.

Agreed. On matching Berkshire.... But I used Berkshire because it just happens to be his company! Even if Buffett invested in a simple index fund he's still up massively since that home purchase was made. And that's even with a bear market that lasted well over a decade until the high flying 80's and 90's.

And I don't know anyone who advocates stock-picking for 99% of the country...

From John Bogle to the Hedge Fund manager of the month, they all beg the average income investor to buy the total stock market through an index. Why? Because the data is more than ample that over any extended period the total stock market beats owning real estate or any other asset class. 99.6% of multi-millionaire mutual fund managers can't beat you the S&P 500 investor sitting at home in his lounge chair and slippers. Yet the average U.S. worker passes up more of this oppourtunity than they should for the privilege of being a home owner/owing the bank. The major benefit of investing in different asset classes comes from doing so over a long period. You can't expect a good result if you wait until your in your 50's because most of your money was tied up keeping up with home-related expenses.

You should not base your decision to buy RE just on how much you saved vs. renting, you should also factor in what owning is costing your investment portfolio over the course of 30 years. That's my point.

[Perfectlap]

Originally Posted by Topless

Another fallacious strawman argument PL. He has to live somewhere and the total costs associated with owning his home were lower over time than the total costs associated with renting an equivalent property over the same period. This freed up more cash to invest wisely in Berkshire.
.

...an equivalent property. That's right. There is no rule that says you can only rent the equivalent property you intend to buy. I'm not sure why folks in the rent vs. buy debate always frame the comparison in this way, 'equivalent property' is the only situation where costs are lower. There is such a thing called down-sizing: In all other situations you can rent a dwelling that is 2/3's the cost of the home you intend to purchase. And often, that's still renting a much bigger property than the one you would be living in as a home ower err I mean home owner, usually when the rental owner has long paid off the property or simply inherited it -- they aren't passing down all the costs straight to the renter. Or in other more recent cases, the rental owner purchased a foreclosure, paid it off in barely 10 years (or less) and can charge below market to secure a good, reliable, well-employed tennant.

Also, the total costs to rent was indeed higher in the long term for Mr. Buffett.
Now what about the return Mr. Buffett would have made had he simply rented a less-expensive-to-live-in property and invested the savings over 30 years into the S&P if not Berkshire? Since '65 he would have made 38X's as much with that savings in the S&P or 10,300x's as much in Berkshire. The point is what you saved on renting in being a home owner (and only in the 'equivalent home context') has cost you dearly as saver/investor in that time horizon. Home ownership forces too many to divert far too much of their income into their bank's coffers and not into their own net-worth. You will will always have more time under the belts of your investments if you rent because you'll have more wiggle room after expenses. And time is the the crucial make or break for maximum performance in most asset classes.

[Perfectlap]

Originally Posted by rondocap

I agree with you on The home ownership pipedream. What made you to reach that conclusion? I'm just curious, because I kind of felt the same way. I'd like to hear more about it.

Because every investment has two sides. Performance and cost. Some think the former is the only thing to consider. Big mistake.

The real estate industry love to run commericals with Tom Selleck voice overs telling you that a home purchase is not an investment, it's a way of life. That's total BS. I can barely watch those things. Many do make a comfortable living and can do the double: A) paying a mortgage with interest, property taxes, maintenance and all the other mandatory costs that go above an beyond the cost to rent, AND B) put away enough into a retirment account to live off for 20 years after the age of 65-67.

I can tell you right now the average American can not buy the home they feel has enough square footage, amenities and quality of schools without taking on more mortgage than their retirement planning can ever allow. Since 1980 the securitization of mortgages has made it far too easy for people to borrow money they have no business borrowing if they aren't planning on working until they drop dead at 75. The bank approves a young couple for X amount of loan and then they go out and see how much home they can buy for X without ever sitting down with a financial planner or investment adviser to see what they should be spending in the first place. Is it a wonder why the average American has almost nothing saved? This spend now plan later over-leveraging raises real estate prices to unreachable levels. The municipalities reward these poor planners with higher property taxes because the only people who can qualify for higher and higher mortgages are those with rising incomes -- precisely the targets of municipal and state tax authorities. So your home went up 10% this year? Great, that's peformance now what about the rise in cost to hold that investment ??

If you live in a state with low taxes different story, but generally, that's not where real estate prices are rising because wages tend to be flat or falling in those states. It's a catch 22. And of course this doesn't even address the fact that you'll be paying 15 years of interest before any of the money even goes into the loan itself. So your home has to go up that much more to compensate for the performance you missed out on in other asset classes, namely the S&P 500 which the average investor can't time, they have to be in it without interruption all while they are working. So that mortgage interest cost you more than you think.

Real estate is simply an asset class that carries probably the highest cost to hold -- which means the return is compromised. If you are properly diversified in all asset classes then you can't possibly be putting half your income into your home like so many do. Much like going too deep on stocks, going too deep into a mortgage as % of income, leaves your net worth extremely vulnerable to the whims of the real estate industry/TBTF banks who may decide to dump so much inventory into a state like FL for instance, such that houses will never be worth what many paid or they'll have to wait 15-20 years until their back at BEP. While in states less prone to bubble to bust cycles.... from MD up to Maine where property taxes are reaching absurd levels, the politicians will slowly be draining your net-worth of the equity you were building to the point where you will not be able to afford the taxes (and other costs) on the house you finally paid off!

If you don't have kids, don't enter the real estate market if it interferes with your retirment savings plan.
If everyone followed this advice real estate prices would fall dramatically in all but the high income/high net worth zip codes. That in itself should tell you the disaster that we are setting up for the future.