10-15 Year Investment Options?

[Tom '74 911]

Say you have $100K that you won't need for 10-15 years. Given the current state of the economy, how would you use it to best position yourself financially 10-15 years from now? The stock market seems like a total sham ruled by insiders. Fundamentals mean nothing anymore. Real estate - lots of foreclosures right now to take advantage of? Buy a classic car? Invest in energy? It's all such a gamble. Banks seem to be the only ones making money right now. . . banks? Vandelay Industries?

I know I'm not the only one in this boat! The economy has completely shut down the business I have spent the last 10-15 years building up. It bums me out, but I also see it as a potential opportunity - I just don't know where to focus my energies. Throw me some bones!

Tom

[daepp]

A rental property or two with 15 year fully amortized mortgages?

[GH85Carrera]

Real estate is about the only thing I would trust. There will never be more land, but finding the perfect place is not easy.

[lukeh]

A diversified portfolio of 50% growth mutual funds (with a focus on dividends), 30% bond funds (short term high yield) and 20% non traded REITs that use low leverage, avoid retail space and focus of office and health-care property.

[TSNAPCRACKLEPOP]

i highly recommend things having to do with healthcare of the babyboomers that are paid for in cash. anything that will keep them young, including rock and roll.

also drug companies are projected for great profits.

[RWebb]

for mutual funds, get these from Vanguard:

27% Capital Opportunity or the Odyssey fund that is similar
22% Selected Value
16% Dividend Growth
13% Growth Index
11% International Explorer
5% Health Care
6% Short Term Investment Grade

you will need to rebalance that periodically - every year or so by folloiwng a guy with a proven track record on Vanguard Fund selection, Dan Wiener

over time, his record beats an index fund which is another option

[911Freak]

We're in a similar position.

The stock market isn't for us as our main 01k/IRA took a 60% hit, so we're going the R/E investment property route as mentioned above. 15yr terms with 10-20% down, SFR & multi family properties etc.

There is a ton of great inventory out there, and once you find a good mortgage guy who knows the new products/programs and which loan programs are being funded etc., a great broker who has a proven relationship with the big banks you could do very well with a 100k and a little creativity.

The benefits of a broker with the relationships are numerous: avails more assets to choose from, a smooth transaction once the banks know your capability to close on their assets. A broker with these relationships (as there is favortisim in every industry) will open doors to pocket listings, exclusive listings, private portfolio offerings, bulk discounted inventory, excellent property managment firms, lease agents to respectfully show, screen and place tenants etc.

We chose R/E because we know this industry, have a comfort level becasue we understand how it works inside and out. Whereas with stocks and bonds we don't have this comfort level. We're still in the stock market via mutual funds as part of my wife's employers 401k plan in addition to the need to be diversified.

Looking forward to other Pelicans chiming in on this topic as there are some very talented and creative folks here!

Good luck, buy low, hold and sell high.


Jason

[Bill Douglas]

Originally Posted by daepperson

a rental property or two with 15 year fully amortized mortgages?

+1

[unclebilly]

If you have $100k, don't buy mutuals - buy securities. Pick 20 undervalued bluechips (darned near everything still) and buy $5k worth of each. Buy into several sectors and go long.

Mutuals cost $$$. You pay the sararies of the guys that run the funds plus house commisions etc. Build your own mutual so that you get 100% of what the fund makes in terms of dividends, etc.

You may also be able to find a broker that will do this foryou for as low as 1%/yr plus trades and he'll watch your securities for you.

I have done the above as well as realestate and have some other passive income. The stocks are the least time ointensive proposition. Don't kid yourself, rental properties take time, work, and can be stressfull to run.

Another option is to use the $100k to leverage your way into as many rental properties as possible. Once again, this can easily turn into a full time job.

[turbo6bar]

Stay in cash until the strategy becomes clear. Inflation is not out of control. Equity markets won't blast off without you, and housing prices are still trending flat to downward.

Housing is usually a safe investment. I like investment real estate. However, it is nearly a way of life and not a mere investment. If you tread into RE waters, I urge you to begin studying your market now. What sort of returns can you obtain? Are tenants easy to find? Is the government landlord-friendly or tenant-friendly? Can you generate reasonable cash flow? Are you handy?

I've gotten really good at that stuff after making a series of mistakes. Knowing what I do now, I won't get into more rental properties until the numbers are really good. I want adequate compensation for investing my time and experience and taking the calculated risk. Remember, appreciation won't be there to juice your returns. You gotta make it on tax benefits, cash flow, and equity pay-down.
I wish good luck to you.
jurgen

[lukeh]

Originally Posted by unclebilly

If you have $100k, don't buy mutuals - buy securities.

Mutuals cost $$$. You pay the sararies of the guys that run the funds plus house commisions etc. Build your own mutual so that you get 100% of what the fund makes in terms of dividends, etc. You may also be able to find a broker that will do this foryou for as low as 1%/yr plus trades and he'll watch your securities for you.

Sounds nice in theory but statistics prove the average stock picker will way underperform a great or even average fund. This only makes sense as what are the odds some full time Joe plumber, mechanic, sales manager, Dentist...has the time/energy/education to manage a portfolio of stocks better than a team of professionals with doctorates and MBAs that have 20+ years of experience and follow this stuff all day long?

I'd also ask why would I want to pay 1% to a broker (plus trades) when I can buy a no-load fund that only charges me .25% - .75% a year? Besides, the odds are this broker has hundreds of other accounts to watch while the fund manager and his team only have this one fund to keep an eye on.

I'll also add that I have yet to find a stock picker that can give me his average annual rates of return over the past 1yr, 3yr, 5yr and 10yr periods. Take my CPA friend. He also picks his own stocks because of concerns over the costs associated with funds. I asked him how his portfolio has held up since the big drop in 08. He said "okay". I asked what his rate of return has been and he had no clue. He didn't even know how to figure it out as he constantly buying and selling and constantly has money going in and out of the account. At the end of the day he had no idea how he was doing compared with the market in general or some index fund. He's also the same guy that sold BP at $30 because he feared it was going to zero if they couldn't stop the leak.

Now I realize there are always exceptions to the rule but in my opinion asking the guy off the street to pick 20 stocks to put his 100k in is like handing a 5yr old a loaded gun. The odds are it won't end well. If his lack of time and education don't do him in his emotions will get him the first time his statements shows he just lost 10% or his BP stock shows up on the news.

[Scott Watkins]

From yesterday's chron.com.

Burns: The joy of cooking diversified portfolios | Business | Chron.com - Houston Chronicle

[unclebilly]

It's your money but here are some further comments:

Stay in cash until things get better = miss the boat on any upward swiungs in the market.

Lukeh - your friend's strategy is NOT what i suggested. I said pick 20 bluechips, not penny stocks. Put the money in and leave it (don't constntly put money in and out like you mentioned).

If you look at any of the 'better' (where better = popular) funds, the true cost of ownership is 5 - 10% when you factor in fund managers, the commision to the house that sold you the fund, etc.

I am speaking from experience and my portfilio is WAY up. I sold all of my mutuals in late 08 and got into securities. I have profited very well from the upswing since the 'crash'. Sticking with the mutuals, I would still be under water.

Your results may vary.

[Rich76_911s]

Without knowing what your goals are for the money, and your tolerance for risk of loss are we really shouldn't be telling you what to do with the money.

So what are your goals? What kind of returns would you like to see, and how much risk do you want to take on.

If you want shoot for the moon returns and infinite risk someone can tell you which penny stocks to buy, if you want no risk and very little returns maybe a savings account is for you.

One thing I would point out is that over the short term fundamentals really don't matter (in todays world), but odds are over a 15 year period fundamentals become significant. So if you find companies whom you believe are cheap and are not being fully recognized today, over an extended timeframe they should eventually find full valuation. This is assuming your anaysis is correct.

[turbo6bar]

I agree with the last posts. unclebilly says you shouldn't stay in cash. I think you should wait for the trend to change, or at the very least don't go all-in at once.

The right path is up to you, Tom. By mere chance, one of us could have the same profile as you (risk tolerance, goals, amount of time invested, etc), but I'd hazard none of us is exactly like you. You have to educate yourself until you hit the right investment.

Rich, when you look at the Dow/SPY over the last decade, it's terrible. Go back 20 years, and the return still isn't remarkable. Viewed over 30 years, we're starting to look good, but that's a long time to be patient. Assume a baby boomer starting truly investing in the late 80s. He's approaching retirement, but his portfolio has done a little better than inflation. He's screwed. Throw troubled pension plans and sour housing values into the pot, and the path for future success is quite cloudy.

[Tom '74 911]

I really appreciate everyone's input and suggestions so far.

While I honestly think the stock market is a crap shoot (where using darts and a monkey to pick stocks can often do as well as a "professional") I do have money in it that has done well. I also have some real estate. Really, I'm pretty well diversified at the moment as is.

My thought is that usually when people are (financially) running from something, there is opportunity - learned from my brother who is an ex-financial guy. A recent example might be oil because of the gulf spill. People ran from anything oil related and my opinion is that it will come back. We need oil. Oil companies make money. The trick, obviously, is picking the right places/companies to invest. Did I invest in any oil companies? No, because I am chickens**t.

So right now, the economy stinks. So there must be opportunity somewhere. What can I do today that I will look back on in 10-15 years and think wow, that was a good move; I really took advantage of the situation back then and made some smart investments.

I know that if it was easy, everyone would be doing it - like Bernie Madoff I suppose.

Tom

[jcommin]

Originally Posted by turbo6bar

Stay in cash until the strategy becomes clear. Inflation is not out of control. Equity markets won't blast off without you, and housing prices are still trending flat to downward.

Housing is usually a safe investment. I like investment real estate. However, it is nearly a way of life and not a mere investment. If you tread into RE waters, I urge you to begin studying your market now. What sort of returns can you obtain? Are tenants easy to find? Is the government landlord-friendly or tenant-friendly? Can you generate reasonable cash flow? Are you handy?

I've gotten really good at that stuff after making a series of mistakes. Knowing what I do now, I won't get into more rental properties until the numbers are really good. I want adequate compensation for investing my time and experience and taking the calculated risk. Remember, appreciation won't be there to juice your returns. You gotta make it on tax benefits, cash flow, and equity pay-down.
I wish good luck to you.
jurgen

+1. Stay in cash. Housing is still in decline.

[daepp]

Originally Posted by turbo6bar

I've gotten really good at that stuff after making a series of mistakes. Knowing what I do now, I won't get into more rental properties until the numbers are really good. I want adequate compensation for investing my time and experience and taking the calculated risk. Remember, appreciation won't be there to juice your returns. You gotta make it on tax benefits, cash flow, and equity pay-down.
I wish good luck to you.
jurgen

Jurgen - from past posts I have come to value your opinion. My guess is that you have had success in R/E by learning from your mistakes. I would like to be in a similar place someday.

I wonder from your post how important R/E appreciation is? Let's just assume that prices and rents remain flat for the next 10+ years. With a fully amortized note, presumably if you get in the property right and keep it mostly occupied , isn't there a great payoff in the end (say at retirement age) as the rents come in and the mortgage is paid off?

(Secondarily, there's the step up in basis for your heirs - assuming that tax law doesn't change.)

[turbo6bar]

Originally Posted by DAEpperson

Jurgen - from past posts I have come to value your opinion. My guess is that you have had success in R/E by learning from your mistakes. I would like to be in a similar place someday.

You shouldn't listen to me. I'm winging it. My fascination with real estate could lead others into a trap of death by real estate.

I wonder from your post how important R/E appreciation is? Let's just assume that prices and rents remain flat for the next 10+ years. With a fully amortized note, presumably if you get in the property right and keep it mostly occupied , isn't there a great payoff in the end (say at retirement age) as the rents come in and the mortgage is paid off?

Appreciation is certainly important if we assume inflation will be around in the future. Few will disagree that real estate matches inflation.

Assuming that prices and rents stay flat for the next 10+ years is quite conservative.

Paying down the note to zero is indeed a great milestone. The cash flow grows dramatically. However, don't let thoughts of that treasure chest take your focus away from making prudent investments now. You must have adequate cash flow NOW and manage the property well. So many fall into the trap of investing in a property for puny or negative cash flow. Others say they could never evict a tenant. How many would allow their employer to skip a paycheck or two? If it isn't OK for your employer to shortchange your paycheck, why is it suddenly OK to accept a non-performing investment?

That said, if you can find a nice property or properties in the right area, and more importantly, you're willing to think long-term, there are far worse places to put your hard-earned dollars.

The downside to RE as compared to other assets is it isn't a hands-off asset. I suppose you could argue the same for equities and bonds. If you're willing to put in the time, you can select the stocks and bonds to yield good returns. Many outsource the hard work to money managers, or in the case of RE, property managers, and you'll never gain satisfaction, IMO.

(Secondarily, there's the step up in basis for your heirs - assuming that tax law doesn't change.)

Good point. It definitely helps heirs, but isn't the stepped up basis applicable to other asset classes?

[daepp]

Well, I grew up doing moderate maintenance work on rentals. Paint, hot water heaters, waiting for the HVAC guy. None of that bothered me really. Very few "emergency" calls. When my parents got old they eventually hired property manages, but no until they were in there 70's.

As for evictions, now that is something I know is troublesome. I know there are services, but no matter what they suck in my state - the tenant has all the rights for 4-6 months.