Real Estate or the Stock Market?

Where should your money be parked in tough economic times?   Should you be in real estate or in the stock market?   In the news today Wachovia Corp. reported a record quarterly loss of $8.9 billion, slashed dividends and announced 6,350 job cuts. The stock fell 12 percent in early New York trading in a single day.

I was talking with a client yesterday who has watched his retirement account dwindle in his mutual fund accounts over these last few quarters.   Now if your financial adviser and money management firm are good, your losses are small, but the majority of securities and money managers, in my opinion and experience, are more salesmen than professional investment managers.

Diversification is a solid investment principal, but if one had to chose between real estate and the unstable stock market, my argument is that real estate is far more secure.   Real estate prices may go up and down, but over the long run real estate has been a reliable investment, and real estate doesn’t go “poof.”

True Stories.   “Under McFadden’s management, Bradley Simon’s retirement fund dwindled from $700,000 to $267,000.” “Ron and Pam Yandell of Mansfield, Texas, turned over their $1.4 million retirement fund to a stockbroker who invested in risky tech stocks without their approval. They lost $230,000 in the tech crash.”   Read the full stories at Real Estate Still a Good Investment.

If all we had to worry about were the economic variables driving the stock market roller coaster, perhaps it wouldn’t be so bad, but there is another more insidious variable over which none of us have control–fraud.

Consider the following companies are just some of the major companies involved in either accounting fraud or corporate fraud of various kinds: Adelphia, AES, Duke Energy, El Paso, Merrill Lynch, Reliant Energy, Rite Aid, Parmalat, AOL Time Warner, Dollar General, PNC Bank, Cendant, Citigroup, Computer Associates, General Electric, ImClone, Peregrin, Xerox, Bristol Myers, HPL, JP Morgan Chase, Kmart, Lucent, MicroStrategy, Network Associates, Tyco, Enron, Global Crossing, Halliburton, Omnimedia, Merck, Qwest, Sunbeam, and there are many more, including major accounting firms and major stock brokerage houses. The losses associated with these companies is in the billions. These are losses suffered by millions of hard working Americans. These losses have nothing to do with a market that turned down. These losses have nothing to do with our economy or investing principles. These are losses people have suffered because of corporate and accounting fraud. How good does the stock market look now? Dell lost $50 billion dollars in market value in a single day, because quarterly profits did not make expectations. In the same day’s news, KPMG was in court for the largest accounting fraud in U.S. history. How safe is your retirement fund?   Read Real Estate v. Stock as an Investment.

[Update:   “The arrest of investment manager Bernard Madoff on charges of running a $50 billion “Ponzi scheme” may be only the beginning of the legal saga involving the Wall Street veteran.”   Article posted on Reuters December 12, 2008, Read Legal Experts See Wide Fallout From Madoff Case.   The implications of this massive Ponzi scheme are going to devastate mutual funds and millions of people.   Among those who invested with Madoff:   Tremont Capital lost hundreds of millions; Maxam Capital Management has combined losses of $280 million; Fairfield Greenwich Group may have lost $7.3 billions; Fix Asset Management may have lost $400 million; and the list goes on.]

The real estate market everywhere is experiencing a slow market and real estate values have declined in value in many regions.   But even where I am on the Olympic Peninsula in the great State of Washington, real estate is down by a small percentage, such as 10% over the past 12 months.   Compare that with a 12% drop in stock value in a single day.   Better yet, compare owning a single family residence as a rental, or several of them, and the massive losses because of the market crash and the unbelievable fraud that is costing investors billions in the stock market.   That’s scary!

This is a buyer’s market.   Real estate is the best place to park your money.   What are you doing to be proactive in dangerous times with your financial future?

Last Updated on December 13, 2008 by Chuck Marunde