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Old 01-10-2009, 06:23 PM   #41
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  • can offer great returns, as it has in your case, or can blow you up, as can any investment that depends on a high degree of leverage
I don't doubt your success in RE and your enthusiasm for it, but I know we have seen posts on this board from others who bought RE as investment and got hosed by it. Maybe they were noobs who drank the Kyosaki kool-aid and didn't know what they were doing, but still...RE is not a low risk / high return proposition. I would also challenge your statement that RE in any "decent" area appreciaties +10%/year...at that rate, the majority of my generation would never be able to afford a house, because I can assure you our salaries are not increasing at 10% YoY in perpetuity.
Again, there is NOTHING wrong with leverage. It is a powerful tool! Do not confuse the concept with being "overleveraged"! Yeah, there are some people on this board that don't seem to have a clue about what they're doing and some have been successful despite themselves but let's not name names. Check out neighborhoodscout.com You'll find your double digit NBHD's there, don't take my word for it. In SF they have below market housing for people that can't keep their salaries up with housing. I think $85K is the cut off now.

You were the one looking for a better way. I mentioned one. Maybe try lottery tickets.
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Old 01-10-2009, 06:44 PM   #42
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Lots of ways to skin the cat, Soup. DH and I have no RE exposure beyond our own little home and a little piece of land we'll build on one day. Perhaps in the future we might move a little into an RE fund but not now, for us.

Good friends jumped into active RE ownership of several properties about five years ago and as you might imagine they are drowning about now--cannot rent the places for anywhere near the mortgages, never mind the day to day stuff. I think anyone who is successful at this would tell you it's not for everyone (just as other investments are not for everyone--one size does not fit all). Also, I don't know how one dollar-cost-averages into active property ownership, say $100 a paycheck, to spread the risk and return over time. But I'm sure someone will enlighten me .
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Old 01-10-2009, 06:55 PM   #43
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If you're still around in 30 years, we'll talk. Looks like I touched a nerve there grandpa, so I'll leave it as is. No one can doubt your RE success, but for someone who spends his days counting money perhaps you should handle yourself with a modicum of class and perhaps a teaching spirit, neither of which I've seen here on the YD boards.

Old guys flashing cash to under 30-year olds who have already seen two boom/bust bubbles since they entered the workforce, hmmm, not sure what kind of reaction you should get here. RE investing will become a part of my investment portfolio but not all of it. Not going to put all my eggs in one basket.
I'll be here in 30 years and that's Mr. Grandpa to you! Thanks to my real estate investments I'll be able to buy some 30 year old body for a transplant or clone a new one. But why wait 30 when I am confident that in less than ten anyone not buying now will wish they had because in the 80's everyone said I was "lucky" cause I bought in the 70's and in the 90's everyone said I was "lucky" I bought in the 80's blah blah and now everyone says I'm "lucky" I bought in 2003/2004. Do you see a trend here?

If you think I'm trying to teach it's only by example but you seem to be distracted by all the obstacles thrown your way. Two boom/bust. In my day we had those with two feet of snow, no internet, and no boomer parents leading us to believe we were entitled to better. Try graduating in the 70's. All we are saying is give real estate a chance!

If you go back through my posts you'll find a lot of info. Why won't you be the bigger whippersnapper and share your research?
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Old 01-10-2009, 07:08 PM   #44
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As a young person starting out in their career, I have a lot of years of saving for retirement ahead. I don't expect to receive a pension, nor do I think that SS will provide any meaningful standard of living. So I have to save this money myself if I ever want to retire. Not to mention other long-term savings for things like kids' education and whatnot.

This raises the question of what to do with all those long-term funds that I need to accumulate. Short-term/emergency funds are easy: bank or money market fund. Until 2008, I followed conventional wisdom that the market was the place for long-term investments. But even my conservative mix of dividend stock and bond index funds was down 20% last year. Diversification? There was no place to hide. REITs, commidities, etc. all had a good run then blew up. Treasuries were up, yes, but that option is less appealing when the 10 year note is yielding 2.4%.

A buy-and-hold investment in stocks that can drop 30% for reasons that you have nothing to do with is not such a great long-term investment in my book, especially when your dividends get cut along with capital losses. I don't think I'm smart enough to time the market or daytrade my way to profits. You can argue that stocks will come back over the long term, but if the next 10 years is anything like the last 10 years, that's far from guaranteed. You can stretch your investment horizon out as far as you like but that still doesn't ensure you'll eventually make your money back. Obviously the risk/return tradeoff exists. But for risk to be real (and for investors to be compensated for it) sometimes investments will blow up. If we all agreed stocks were risky but you could get around this risk just by never selling when they were down, they wouldn't really be risky after all. I'm not arguing that "this time it's different" but I am skeptical that patience solves all of equities' problems.

So what else is there? I haven't found a whole lot of good options for long-term savings.

CDs/MMFs: low yield, inflation will eat me alive over the long term

Annuities: the fees make me want to barf, the vendor is as likely to go bankrupt as I am, and I can't get to the funds when I need them anyway.

Muni bonds: low expected return, crazy spending by municipalities with falling tax revenues may put them next in line for a bailout.

Real estate: <cough>

Start your own business: time consuming, not a good fit for my personality.

TIPS: Looks good today at CPI+2.5%. But inefficient to hold in a taxable account. CPI may not match personal inflation over the long term.
Soup,

This isn't advice, so don't sue me if you listen to me.

I would have been roughly your age, I think, back in the big bear of '74 to '82. I primarily went to cash as a result and would never have FI/RE except for company stock in my 401(k) which eventually went nuts in the late '80s through '90s. My point is that you are probably young enough to just wait for the next bull market. I should have. If I had, I'd now be "rich" instead of FI. I'm thankful for my company's policy of not letting you cash out their stock (long since been changed - I did cash out before it "crashed") So, not giving advice, but either get lucky like I did or pick an AA and stick with it. Your choice!!! Oh. And don't forget. YMMV
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Old 01-10-2009, 07:54 PM   #45
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I agree, it is convincing, and I think that it is still very likely that equities will continue to compensate investors for their higher risk over the long term. But there must be some non-zero probability that things DON'T work out that way. Governments can change business regulations, the world can change, etc. Maybe that risk is 0.01%? 1%? 10%? I don't know. But my hopes of ever retiring on a stock-heavy portfolio would be dashed if we have a 20 year period of sideways movement. Or a 50% decline the year before I decide to jump.
Well, there are other ways to skin the cat, of course. An example:

One of the interesting things I ran across in my research efforts of the last few years was a bunch of companies (reinsurers) that have a pool of assets sitting around and who generally earn very solid returns but cannot afford to take too much risk (owing to the scary nature of their core business). More than one of these companies made the point that their approach generally offers a lot of juice without that much volatility. Generally, they have about 80% of assets in pretty conservative fixed income stuff: high grade corporates, agency MBS, treasuries and agencies, developed country sovereign debt, TIPS, etc. The remaining 20% is the risk asset part of the portfolio: junk bonds, bank loans, equities, more esoteric stuff (pools of life insurance settlements, leveraged credit funds, etc.). It might not look pretty in firecalc, but these guys generally earned quite attractive returns.

No doubt there are other options. Its a free country. If the choice of the annointed doesn't suit you, try something else. And let us know what it is: I might not agree with your choice or wish to do it myself, but I would be interested in hearing about it.
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Old 01-10-2009, 08:03 PM   #46
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Good friends jumped into active RE ownership of several properties about five years ago and as you might imagine they are drowning about now--cannot rent the places for anywhere near the mortgages, never mind the day to day stuff. I think anyone who is successful at this would tell you it's not for everyone
I'm not saying everyone should but anyone with reasonable business skills CAN do it. Your friends invested the same time I did. The difference is that I did not "jump" into multiple properties. I'd guess they bought in a new development that had no rental history and did not have a fixed mortgage and were counting on short term appreciation. I bought in an established area with mortgages I could afford and where I knew the rental market. I have not had a day of vacancy and rents are stable plus as a bonus I'm up almost $400K.

Now if you go to your spouse saying "little Billy won't stop using my best 9 iron to bang on my porsche" then you probably shouldn't be a landlord. You probably shouldn't have kids either but I don't see anyone advocating that here. YMMV
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Old 01-10-2009, 08:06 PM   #47
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I'll be here in 30 years and that's Mr. Grandpa to you! Thanks to my real estate investments I'll be able to buy some 30 year old body for a transplant or clone a new one. But why wait 30 when I am confident that in less than ten anyone not buying now will wish they had because in the 80's everyone said I was "lucky" cause I bought in the 70's and in the 90's everyone said I was "lucky" I bought in the 80's blah blah and now everyone says I'm "lucky" I bought in 2003/2004. Do you see a trend here?

If you think I'm trying to teach it's only by example but you seem to be distracted by all the obstacles thrown your way. Two boom/bust. In my day we had those with two feet of snow, no internet, and no boomer parents leading us to believe we were entitled to better. Try graduating in the 70's. All we are saying is give real estate a chance!

If you go back through my posts you'll find a lot of info. Why won't you be the bigger whippersnapper and share your research?
I'd be willing to donate a kidney for some good investment advice

You're right though, sometimes us Gen-Y types are too focused on fast information and in fact, we've grown up being too overloaded with it to correctly process much of it (not to mention two boom/bust cycles where many of us lost our employment). RE investment is not a matter of IF but WHEN for me, so I'll try and share more especially through the spring of this year. My investment group (we don't pool together resources $$$ but rather information) having been putting things into place nicely, we'll see what happens. I have my F-I-F-U money in place and have a pretty long horizon of 30 years, so its time to take some risk and see what happens. Call it cautious optimism!
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Old 01-10-2009, 08:09 PM   #48
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Call it cautious optimism!
Well, there is "cautious optimism" ...and then there is the other kind.

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I'll be here in 30 years...
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Old 01-10-2009, 08:14 PM   #49
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Well, there is "cautious optimism" ...and then there is the other kind.
Oh just for that I'll make sure my freeze-dried self comes to your town!
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Old 01-10-2009, 08:14 PM   #50
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Somehow I am getting a Kiyosaki vibe here. Is bragging about your supposed success some kind of mental disease acquired from too much time spent evicting deadbeat tenants?
RDPD is a liar, cult of personality, and tout.... but

This being said, some of his principles do make sense to me and I have read a couple of his books. If nothing else, it does get the discussion going because most either love him or completely despise him. I'm in the minority that just tolerates him enough to not turn off the TV when his botoxed face starts yapping about something.
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Old 01-10-2009, 08:19 PM   #51
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RDPD is a liar, cult of personality, and tout.... but

This being said, some of his principles do make sense to me and I have read a couple of his books. If nothing else, it does get the discussion going because most either love him or completely despise him. I'm in the minority that just tolerates him enough to not turn off the TV when his botoxed face starts yapping about something.
No accounting for taste, I guess. Considering the huge crowd of lemmings that assclown led over a cliff in the past 5 or 10 years, I can think of far more colorful adjectives to describe him.
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Old 01-10-2009, 08:33 PM   #52
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Old 01-10-2009, 08:38 PM   #53
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Soup, don't believe this poppycock! I don't remember brewer54321 mentioning how many rentals he's managed and for how long but I've been doing it for 25+ years in three different states and currently have five rentals 3,000 miles away!!(not that I specifically recommend this) and I have a full time professional career. The few actual hours I spend barely qualifies this as a hobby unless you count all the time I spend counting the money, making graphs showing the pay down in mortgages and increases in income and appreciation! Conservatively $10,000,000(if historic rates drop by 50%) to $21,000,000 in 27 years with about $4,000,000 in rents over the same period
Hono, for over 900 posts you have been touting real estate. I don't understand a few things. If real estate has done so well for you, why a full time professional career too? Or do you just live high?

So are you saying that your properties have appreciated between 10 million and 21 million dollars? If you have that kind of net worth, why not ditch it all and spend time on a beach? Or is this expected appreciation for the future?

IIRC, in other posts you mentioned that some of your properties do not cash flow and you are banking on appreciation. Am I remembering correctly? If so, how do you finance the losses? To do your deals you borrowed originally from equity in your home to put money down on others, yes?

Make your best case for real estate. Give us some details. Do your properties cash flow? How much is leverage, how much equity?
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Old 01-10-2009, 09:20 PM   #54
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Seems like the game has changed for people that are in their 20-30s today. Someone planning for retirement in the 1970s had the "three legged stool" of SS, pension, and whatever investments they made. So if the investments didn't pan out (stocks -30%) they might have to reduce their standard of living a little, but they weren't going to be eating cat food.

My new job has a decent pension, but will I be there long enough for it to vest and become anything substantial? Maybe, but I'm not counting on that. Over 20 years, the cumulative probability of layoffs or voluntary job changes is just too high.
.
While I can obviously relate to the frustration anyone in or planning on retirement is feeling. It seems that each light at the end of the tunnel is actually a train creating further destruction as it wrecks spectacularly.

Still it is important not to view the past through golden gilded glasses.

Here is a condensed version of my book The History of Work and Retirement in America.

Chapter 1: The Pioneer Age 1783-1935.
"You can always spot pioneers by the arrows in their back"

Work from sunup to dawn do back breaking chores for 6 1/2 days a week under filthy, dangerous conditions conditions. Get sick, have your blood sucked out by quack doctors and leeches. Get taken care of your family, and then die (generally) young.

Chapter 2: The Dawn of Social Security 1935-1954
"Living Large on a $1 a day in America in your Golden Years"

Perform mind numbing tedious task for 5 1/2 days a week. Get sick, die; collect Social security. The brilliance behind the Social Security system was when it was first implemented on average men died before collecting. The typical black or Hispanic men got diddly even if he lived to 65 because agricultural and service jobs were exempt from SS. Needless to say the checks barely covered cat food. The first check being for 22.54 a month.


Chapter 3: The (fools) Golden Age of Pensions 1954-1984
"We are the borg you will be assimilated resistance is futile"
Put on a uniform every day (suit for white collar workers, dungaree for blue collars) learn the fine art of brown-nosing boss/union leaders. Spend your life working for one employer, after 30 years collect watch and a pension. Enjoy fishing for a few years, die.

But here is the rub. "The previous generations had a pension", is mostly an urban myth. I don't claim to be an expert, but I have researched the subject of pension several times over the last few years. As far as I can tell at no time in America history were more more than 1/3 of private sector workers covered by a pension. While pension plans have been around since the 1920s they really only started getting popular in the 1950s and probably reached a peak of popularity in the 1980s before gradually being phased out through out the 1990s and this century.

In general to be covered by a defined benefit pension plan you needed to fall into one of these categories.
  • Work for the government
  • Be a member of skilled trades union
  • Work for a Fortune 500 company, that had a large skilled work force. Examples 3M, and IBM had pension plans Walmart, McDonald didn't.
Finally, and most importantly you typically had to work for 20 years+ to qualify. Since the majority of Americans work for smaller firms they never were eligible for pension plans. In addition people change not only companies but career field far more than they did a generation ago, so in this respect. Pension are pretty outmoded.

Nor were private pension generally every particularly generous or super secure. Prior to the establishment of the Pension Guarantee Corp in 1974, many retirees pensions were wiped out when their old employers went under. This is especially true of auto, steel, railroads, and airlines companies. My dad worked for more than 25 years for the same company,my mom's survivor pension is ~$500 month, not exactly a windfall (Although to be fair he did start taking the pension at 55 and she has been collecting for almost 30 years...)

Chapter 4: The IRA/401K multimillionairesthousandaires 1984-2008
"How I day traded my IRA into billions"
Spend 40+ hour in air conditioned office chatting with loved ones and friends. Learn to hot-tab from Tetris to a spreadsheet. For some commute consists of putting on robe and moving from bedroom to home office.

After a couple of decades of presenting hockey stick graphs of your future billions and overwhelming employees with choices, Companies finally got smart and just started deducting pay and sticking into index funds.

Sadly the promise of future millions; lost to the lure of big screen TVs, and exotic vacations in the present. Quack financial doctors, annuity salesman and other leaches sucked many old folks dry. For many IRA got depleted and that was before the great recession of 2008.

However, a small but diligent group of savers paid attention to compound interest and prospered.

Chapter 5:
The Future (2009-...)
"It is always darkest before midnight."

Faced with a per capita public debt load of 40K, and many times that in private debt. Americans went back to future and adopted their ancestors retirement philosophy die young.
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Old 01-10-2009, 09:38 PM   #55
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clifp, I like your whole "history" esp. the myths you explode, but have you considered this may be a bit of one also:

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... In addition people change not only companies but career field far more than they did a generation ago ...
I've heard this before, but wonder what data there really is to back it up.

It's anecdotal I know, but I've known lots of people from my parents' generation that worked in two, three, or more very different fields in their lives. In addition, I'm a bit of a history buff & from my reading I have the impression the same is true for many folks in generations of common folk previous to my parents.
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Old 01-10-2009, 10:11 PM   #56
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Hono, for over 900 posts you have been touting real estate. I don't understand a few things. If real estate has done so well for you, why a full time professional career too? Or do you just live high?

So are you saying that your properties have appreciated between 10 million and 21 million dollars? If you have that kind of net worth, why not ditch it all and spend time on a beach? Or is this expected appreciation for the future?

IIRC, in other posts you mentioned that some of your properties do not cash flow and you are banking on appreciation. Am I remembering correctly? If so, how do you finance the losses? To do your deals you borrowed originally from equity in your home to put money down on others, yes?

Make your best case for real estate. Give us some details. Do your properties cash flow? How much is leverage, how much equity?
Martha
I answered you in a big long post that got ate. I'll duplicate it tomorrow. But better yet, why not pose your questions to all the real estate naysayers. The facts are in my 900 posts if you care to investigate. The naysayers seem to more unsubstantiated.
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Old 01-10-2009, 10:30 PM   #57
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Of course what the RE fans don't bothermentioning isthat RE is a PITA and effectively a second job. If you have limited alternatives, I suppose that's what you do, but for those of us with a day job RE would have to be very attractively priced indeed to make it worth it. At least where I live, it ain't there yet. Maybe in another year, maybe never.

Soup, I hate to tell you this, but there are no free lunches. Either you live with the greater volatility of equities and other risky assets, or you stick with TIPS and I bonds and work/save a lot longer. It is what it is. But before you make a decision, go take another look at the historical data.
Soup and pasadena,

From one youngun to others...

Just curious, but have you considered getting a job with a solid
pension? That seems to be what you're looking for. (Soup,
I think you said your job had a pension, but you don't
expect it to be around...)

I preach the virtues of pensions to anyone who'll listen, but
it seems like everyone I talk to under the age of 50 could care
less. You guys are reading this site, so I'm assuming you're
more interested in the subject. Just about every private
sector job has some kind of corollary in the public sector.
So I'd like to hear your experience, what's holding you back
from making the switch?

-LB
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Old 01-10-2009, 10:43 PM   #58
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clifp, I like your whole "history" esp. the myths you explode, but have you considered this may be a bit of one also:



I've heard this before, but wonder what data there really is to back it up.

It's anecdotal I know, but I've known lots of people from my parents' generation that worked in two, three, or more very different fields in their lives. In addition, I'm a bit of a history buff & from my reading I have the impression the same is true for many folks in generations of common folk previous to my parents.
Doing a bit of googling on the subject it is certainly possible that may be spreading a bit of rumor. Most of the information appears to be in academic journals and only available if you subscribe.

The one study I found which supports my contention that fewer people are hanging around (or are pushed out) to get their 20 years in is this paper

In particular the chart near the bottom show a dramatic decrease in the tenure of men in 45-54 from 1983 to 2006. Not sure how significant this but clearly if you are trying to get your 20+ years to collect a pension it is a heck of a lot easier to do so if you have 13 year (on average) under your belt back in 1983 than the current 8 years. I guess I'd probably back off my statement about people doing more more job hoping now than in previous generations, and say that it was never easy for private sector employees to qualify for pension and the situation is no better and probably worse today.
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Old 01-10-2009, 11:45 PM   #59
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A buy-and-hold investment in stocks that can drop 30% for reasons that you have nothing to do with is not such a great long-term investment in my book, especially when your dividends get cut along with capital losses. I don't think I'm smart enough to time the market or daytrade my way to profits. You can argue that stocks will come back over the long term, but if the next 10 years is anything like the last 10 years, that's far from guaranteed. You can stretch your investment horizon out as far as you like but that still doesn't ensure you'll eventually make your money back. Obviously the risk/return tradeoff exists. But for risk to be real (and for investors to be compensated for it) sometimes investments will blow up. If we all agreed stocks were risky but you could get around this risk just by never selling when they were down, they wouldn't really be risky after all. I'm not arguing that "this time it's different" but I am skeptical that patience solves all of equities' problems.
What I'm reading appears to be short-term thinking (1-10 years) applied to long-term performance (20-30 years).

Investors were thinking like this in 1974 and again in 1979. (I still remember one of my college classmates boasting that his 1979 net worth was invested in gold bullion & diamonds.) I bet investors were going through the same hope/despair cycle in 1929-1938 as well.

We didn't make any substantial contributions to our ER portfolio between 9/11/02 and 9/11/08. It was whacked by 40% in both of those years. Yet last Nov our net worth nearly 50% higher at what is arguably the bottom (so far). That works out to a 6%+ after-tax return from a high-equity portfolio, which is also in line with the Gordon Equation. Of course that's just our anecdotal evidence, but I don't know whether you'd gain any more hope or optimism from a longer historical perspective.

20 years after their bubble burst, Japan has called their economy "the lost decade". Despite the U.S. administration's last eight years, the American economy is nowhere near in as much trouble as the Japanese financial system. There are problems, yes, but ours pale in significance to what the Japanese are contending with. I think that America's record of avoiding even worse mistakes is worth a little optimism.

We started our working/investing years at what turned out to be the beginning of a 20-year bull market. There's a fairly good chance that you'll be seeing the same phenomenon in the next five years, if it hasn't started already. If you can't sleep at night knowing that your portfolio may be subject to a random 40% "black swan", then you're right-- equities are not for you. If you can't handle the thought of losing over more than two years' income in a few months then equities are not for you.

Having been a landlord for most of the last 20 years, I'd also have to say that if rental real estate held any compelling attraction for you then you'd already be doing it. I wouldn't get into it just because it seems to be the gold-paved road to riches. If you're interested & motivated then it can work. If you're running to real estate just to run away from stocks then... good luck with that.
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Old 01-11-2009, 07:40 AM   #60
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Chapter 1: The Pioneer Age 1783-1935.
"You can always spot pioneers by the arrows in their back"

Work from sunup to dawn do back breaking chores for 6 1/2 days a week under filthy, dangerous conditions conditions. Get sick, have your blood sucked out by quack doctors and leeches. Get taken care of your family, and then die (generally) young.
Unless you were a slave...
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