Watching a PBS evening investment show last night, I was suddenly face to face with a nice looking, silver-haired gentleman who was ardently pushing stocks as the only investment that really paid off in the long run. He looked the part of the sage advisor, and was slinging his hash with a smile on his face. “Exactly what I’d expect a stockbroker to say,” I thought to myself.
One of the primary theories put forth by NAR Chief Economist David Lereah is that the current stock boom — past Dow 12,000 and now 13,000 in an amazingly short time — is in part due to the fact that the housing boom is over and that lots of investment money has been shifting out of the nation’s housing stock and into equities. I can only imagine that this is a normal, routine cyclical process.
There are gallons of statistics that get thrown around in this debate: annual average return of the stock market vs. real estate appreciation, pros and cons of the taxation of real property vs. equities. In the end, you need an accountant to really give you an idea of which does best for you in your tax bracket, with your tolerance for risk and so on. But this kindly looking gentleman on the television last night made it seem so cut and dried. Stocks win. Game over.
Call me a skeptic. Perhaps I have too many memories of the stock bubble of the turn of the century. How many of us real estate folks got 100 shares of the Realtor.com IPO, watched it soar to be worth tens of thousands of dollars and then fall to earth again before the rules of the IPO would let us unload it. I won’t even go in to my well thought out investment into the now non-existant Pets.com. Or the fact that I managed to buy into Microsoft just as it went from technology high-flyer to stagnant behemoth. Vista, shmista.
The fact no one wants to admit is that hardly anyone really makes ‘average’ returns. The average is just that: some statistical melding of all the people who make good, educated or downright lucky decisions with those who don’t. I’ve shared some of my dogs, but I also have made some good stock investment decisions over the years. But my average is dragged down by my losses and, as I age, I feel even more sorry for the folks who were planning to retire in 2000 or 2001 and who saw hefty percentages of their retirement income vanish almost overnight.
I’ve also lost money in real estate too — and made some. But the numbers we’re talking about pale in comparison to the amount of money that has vanished into thin air on the whim of the equities market. Most Americans — although they may be tied to the Dow Jones because of the equities in their 401k retirement plans — still view the stock market as too risky for people with average jobs, moderate incomes and some level of education less than an MBA. Although technically a slice of a business, a stock certificate is really only a piece of paper. You can’t live in it, rent it out, develop it, or sell it for a substantial sum even in the worst of times. The number of large, supposedly solid, companies who have ended up in bankruptcy in the last decade point out that its not just the Pets.com’s of the world who disappear in a squall of worthless paper. That’s one reality that the smiling gentleman on television just doesn’t want to talk about.
Real estate, on the other hand, is a market that is much easier for most people to understand. They have a mortgage, so they know what it means when rates are high or low. They see the “For Sale” signs on lawns or in windows and they know when inventory is high or moving briskly. They know when people are losing their jobs and economic growth is sluggish, which means that property might not be in demand right now. They know what neighborhoods are desireable to them and which ones are less attractive. As professionals, we have the responsibility to provide the specific information that helps our clients make educated choices about a particular piece of property — but in the end it is their decision to make, and most people feel qualified to do so.
The stock advisor ended his commentary by admitting that everyone should own their home. But he definitely left the impression that other investments should be in stocks alone. I’m sure that’s what the inhabitants of the financial markets dream about.
I don’t think its a good idea. And I don’t think that most citizens do, either.