Apocalypse Budget: retirement vs. real estate?
Caveat: I ask this question with a lot of tongue in cheek, but also with a dash of serious curiosity.
During times of national and / or global problems, do you think it’s better to have long-term savings in a retirement account (which depends on stock market health) or in carefully chosen properties to be rentals? Obviously there are risks either way and both methods are only truly successful if you put money back into them on a regular basis.
This has been on my mind lately given how much my retirement investment account has lost over the last couple weeks and how much crazy growth my town has been experiencing for the past 10 - 20 years.
I’m not so worried about our current situation because I have at least 25 years before I retire (if then even) and I trust things will stabilize over the next couple years as we get herd immunity.
But what about the next pandemic... or war ... or other catastrophes? How well will an investment account serve me then? Am I making a mountain out of a mole hill?
Thanks for speculating / imagining along with me! :-)
Usually you have to trade higher risks for more rewards. If you don't like seeing your balances going up and down you can ignore them (that's my method) or use more bonds, but you'll have to have a higher savings rate the more bonds you use to try to smooth out the bumps. There's no such thing as a free lunch.
I would take the time right now to ignore your balances and read the Random Walk Down Wall Street book.
As PhysicsGal says, stocks have a higher expected return than bonds because they're risky. And not just day-to-day volatility, but the big nobody-saw-it-come systemic shocks.
Silver Deer said:
During times of national and / or global problems, do you think it’s better to have long-term savings in a retirement account (which depends on stock market health) or in carefully chosen properties to be rentals?
The words "market-timing" are hanging over this question. We're not financial advisors, but I can certainly say in a general sense that since almost no professional investors can time the market successfully, you and I have no chance whatsoever.
That means our best bet is to have a plan and stick to it. Ideally, that plan will answer these questions:
- How should I invest? What percentage of my money goes to stocks? Bonds? Real estate?
- When should I rebalance my portfolio?
- Should my investment strategy change over time as I get closer to retirement?
- What should I do when things get ugly out there, because they always do?
There are only two things in investing we can control:
- How much am I paying for my investments? (Less is better.)
- How much risk am I taking? (Taking risk is necessary for most investors, but avoid taking more risk than you need or are comfortable with.)
Good luck out there!