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Re: Retire 1 Year
Old 02-16-2005, 07:58 AM   #21
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Re: Retire 1 Year

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Re. "hold at least 30% in stocks", that is one way.
Real estate is another.
There's stocks... and there's all other investments.

Over the past century, real estate has provided about 6.5% in return. * Stocks? **about 11-12%.

And anyone that understands compounding and exponential growth knows that 11-12% vs 6.5% provides a lot more than twice the growth rate.

I'm not saying real estate is a bad investment. *I'm just saying its not in stocks league as far as long term growth rate and interest rate protection goes. *

(edit) I look forward to the day real estate isnt my #1 asset class. So far it still is. My house which i bought just over a year ago is worth just over 150K. That's MORE than enough real estate exposure for now, IMHO.
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Re: Retire 1 Year
Old 02-16-2005, 10:20 AM   #22
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Re: Retire 1 Year

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There's stocks... and there's all other investments.

Over the past century, real estate has provided about 6.5% in return. * Stocks? **about 11-12%.

Data source, please? What kind of real estate? How about leverage? What are after tax, cash-on-cash returns?

I would not be too glib on this. I have yet to see a source for LT returns of RE that even comes close to a benchmark like the S&P 500 in terms of accuracy.
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Re: Retire 1 Year
Old 02-16-2005, 11:20 AM   #23
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Re: Retire 1 Year

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Data source, please? *What kind of real estate? *How about leverage? *What are after tax, cash-on-cash returns?

I would not be too glib on this. *I have yet to see a source for LT returns of RE that even comes close to a benchmark like the S&P 500 in terms of accuracy.
Oh gosh - i've read a gagillion books on the topic, and several different websites of all kinds on the topic. *It is one of my hobbies for sure. *I'm assuming you dont need a data source for market returns for the past century; figures for the market are readily available everywhere.

Real estate? *The last "specific" figure i recall reading is from Gordon Williamson's "low risk investing"... or maybe it was another site or book. * I recall 6.4% being quoted a few years ago. *I imagine the strong runup of late in real estate over the past 5 years maybe could have pushed that "century" percentage to over 7%.

"Real Estate" is a generic term encompassing so many things; mortgage investment, property management, real estate development, REITs, etc. *Sure there are those that have personally made far greater than 12% in "real estate". *Then again, there are those that bought 10K worth of Dell in 1990 and sold it in 1999... my point being obvious.

I agree, there probably isnt some very accurate average real estate returns over the past century as there is with a market index. *But i'm feel confident real estate as a long term investment focus will continue to underperform stocks over a very long term.

Personally buying and selling real estate for profit 30hr/week or more though is more like a job than a pure investment option. *From that perspective, we might be talking about apples and oranges. *It took me only a few hrs to set up my initial stock investments and have them put on autopilot. *Now 0hrs/week for that.
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Re: Retire 1 Year
Old 02-16-2005, 11:20 AM   #24
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Re: Retire 1 Year

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I'm thinkin of going 100% bonds in the IRA and adjusting the taxable account accordingly. I'm 25 years from drawing on the IRA. The reason is to keep a balanced portfolio (about 50.50) but with the assets that generate taxable income sheltered in the IRA for now.
See, I did it exactly the other way. My Roth is 100% asset allocation fund, my IRA is 100% stocks and mostly rockets (health care, energy, small cap value, emerging market, REIT, etc). My taxable fund is VERY heavy with bonds...a lot of Wellesley, a little Wellington, some high yield corporate, some intermediate term california muni, etc. The whole mess balances out to about 50/50 in total. But my volatile stuff wont be touched for 20 years, while my current and low volatility stuff provides a lot of current income and good sleeping. If my current taxable piece starts losing ground to inflation or my spending needs go up later on in life (say if I my wife retires early and/or I have to start paying for our health care), I'll be recharged by the IRA and/or Roth. The 20 year time window makes me forget about the volatility.

Which brings me to a completely different idea for Jonas. Keep 3-5 years worth of income in a CD ladder (say 300k) and put the rest into a stock heavy fund like lifestrategy growth or target retirement 2045. In good years charge your cd stack back up to the full 300k (+inflation adjustment). In bad years, continue eating the cash component.

Statistically with backwards looking data, unless we hit a sustained very, very bad period you wont ever tap the stock component down enough to impair its ability to recover.
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Re: Retire 1 Year
Old 02-16-2005, 11:25 AM   #25
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Re: Retire 1 Year

From a purely tax perspective Johnblake is right; bonds are better off in tax-sheltered accounts (anything that throws off income is) and stocks, esp those that pay dividends or those you hold over a year, are actually treated very mildly now in taxable accounts (15% cap now), due to the recent changes by the Bush administration.

That being said, tax alone is no reason to sabatoge your IRAs with the anemic growth of bonds over a 25-30 year period. The main reason one avoids stocks is to avoid short term volatility, and someone with a 25 year time frame should not be worried that much, if at all about volatility.
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Re: Retire 1 Year
Old 02-16-2005, 11:34 AM   #26
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Re: Retire 1 Year

That depends on each specific tax situation. For someone taxed at a high rate, you are correct.

Since I've paid no state or federal income tax for the last 3 years, and our current tax year 'married filing jointly' will result in our paying a rate of 15%, bond dividend payments in a taxable account arent much of an issue to me.

Its important to remember that we have several vastly different categories of people here: those who are "pure ER's" that are living 100% off investments, those who are "pure traditional retirees" who qualify for things such as social security, "composites" who are living partially off their investments but have an income stream of some sort, and the folks who are still working and saving towards ER.

Investment strategies, tax strategies, and perspectives are going to vary wildly from one group to the next.
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Re: Retire 1 Year
Old 02-16-2005, 11:35 AM   #27
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Re: Retire 1 Year

Good point; I "realized" over 80K in income this year so what i said would apply to me, but yeah, not to everyone.
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Re: Retire 1 Year
Old 02-16-2005, 11:55 AM   #28
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Re: Retire 1 Year

I'd like that realization

Actually I "made" more than that last year, but I have to say I sort of miss getting paycheck stubs. I'm living vicariously through my wifes pay stubs and thoroughly enjoying nearly free full medical and dental benefits...

I'm considering changing from my stodgy bond heavy strategy to the "one other thing" strategy I mentioned above where I'll go stock heavy and keep a moderate cash buffer, plus my wifes income. A paycheck changes things considerably. Plus I'm concerned about bonds in the short to intermediate term. If Bill Gross would stop screaming that the sky is going to fall any day now, I'd feel better.

Now if stocks would just stop being too expensive... :P
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Re: Retire 1 Year
Old 02-16-2005, 12:09 PM   #29
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Re: Retire 1 Year

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(edit) I look forward to the day real estate isnt my #1 asset class. *So far it still is. *My house which i bought just over a year ago is worth just over 150K.
Azanon, you have me curious. Don't you live in Pugetopolis? Where in heck did you find a house for $150,000?

Mikey
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Re: Retire 1 Year
Old 02-16-2005, 12:20 PM   #30
 
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Re: Retire 1 Year

Right, 'it depends'.

I'm 'pure ER'. no paycheck, no SS, no pension. I'm invested conservatively because I don't need significant growth, but don't want major losses either.

I just did my taxes, and the bonds are pushing me into the 25% bracket, that's why I'm considering moving more into the IRA. I look at my entire portfolio in the aggregate.

Given Jonas has $2.5 mil I expect he'll need to consider taxes. That's why it may make sense to use Munis (expecially state specific) and stock index funds instead of a balanced fund.

Jonas, if you have a significant % of assets in company stock that is your biggest risk. I've seen many people who could have retired on co. stock but never diversified and were burned by corrections in the late 80s and 90s. (These were good companies, not enrons and worldcoms.)




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Re: Retire 1 Year
Old 02-16-2005, 12:35 PM   #31
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Re: Retire 1 Year

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Real estate? *The last "specific" figure i recall reading is from Gordon Williamson's "low risk investing"... or maybe it was another site or book. * I recall 6.4% being quoted a few years ago. *I imagine the strong runup of late in real estate over the past 5 years maybe could have pushed that "century" percentage to over 7%.

"Real Estate" is a generic term encompassing so many things; mortgage investment, property management, real estate development, REITs, etc. *Sure there are those that have personally made far greater than 12% in "real estate". *Then again, there are those that bought 10K worth of Dell in 1990 and sold it in 1999... my point being obvious.

I agree, there probably isnt some very accurate average real estate returns over the past century as there is with a market index. *But i'm feel confident real estate as a long term investment focus will continue to underperform stocks over a very long term.
Sorry, not good enough. "I am confident", "I seem to remember" etc. simply do not cut it. In God we trust, all others show data.

I'm not arguing that everyone should run out and buy real estate. However, I don't think we can glibly say that stocks have been better historically with any kind of confidence, especially when one takes into consideration that leverage and tax benefits make up a lot of the return in most RE investments, and that is hard to see by just observing RE prices (which we can't).
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Re: Retire 1 Year
Old 02-16-2005, 12:45 PM   #32
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Re: Retire 1 Year

>>Then again, there are those that bought 10K worth of Dell in 1990 and sold it in 1999

I started my own IT consulting business in late 1991. The first thing I bought was a very high-end Dell computer...I think it cost around $8000 at the time.

12 years later I was able to retire at 37 after putting in years and years of 60-70-80 hour weeks....I would have been better off had I just taken that $8000 and bought stock in Dell instead of the machine and sat around for the next decade!
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Re: Retire 1 Year
Old 02-16-2005, 02:21 PM   #33
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Re: Retire 1 Year

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I would have been better off had I just taken that $8000 and bought stock in Dell instead of the machine and sat around for the next decade!
Ah, if only you had bought that $3.99 (plus tax) Nasdaq crystal ball 12 years ago.
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