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Real Estate vs. Stocks During a Volatile Market – Episode 221

real estate vs. stocks

IRA Financial’s Adam Bergman discusses the impact the Coronavirus is having on the US stock markets and why real estate is a better investment than stocks.

As everyone knows, it’s not a great time in our world. Financially, the markets have been at their most volatile in over a decade. Retirement funds are down across the board. This is especially true for those only invested in stocks. I’m not sure any stock has failed to lose ground over the past few weeks. Adam Bergman wanted to talk about the difference between investing in real estate vs. stocks. Obviously, nothing has been immune to this current virus, which includes real estate and other alternative investments. However, it’s important that everyone knows that investments span more than just stocks, bonds and mutual funds.

What’s Happening Financially?

We all know the impact that the coronavirus is having on our society physically. Hundreds of thousands have contracted the virus and thousands more have died. Here in the US, over 100 people have died already. Further, we know what this is doing to our schools and businesses. Schools are closed nationwide and many states are closing all non-essential businesses. Everyone is being told to stay at home to curb the spread of the disease.

What you may not be aware of is the global impact this is having on economies. This article, from early March, just as the pandemic was ramping up, show what’s going on. Selloffs, forecasted growth, manufacturing, oil prices, stocks, bond yields are all down sharply. There’s not much anyone can do right now. A huge stimulus package is in the works by our government. Just want the final bill will look like is anyone’s guess. Will it help? Of course. Is it enough? Most certainly not. If you have checked your 401(k) and/or IRA balance, you know it’s way down. On the other hand, if you are invested in real estate, precious metals and other alternatives, you might have not seen a sharp dip in your balance. Those who are properly diversified are not taking the full brunt of this crisis.

Real Estate vs. Stocks

IRA Financial, Mr. Bergman included, is not in the business of giving financial advice. No one is telling you that real estate is the best investment in the world. Further, we’re not telling you to pull all your money out of the stock markets. What we are telling you is that you must be properly diversified with your retirement holdings. Guess what? You can’t have a diverse portfolio if everything you invest in is in the markets. This is why you should consider alternatives in your retirement plan.

What are the benefits of holding real estate vs. stocks in your 401(k) or IRA? Apart from diversity, the major benefit is the impact that world events have on it. While stock markets will plunge during war, trade issues, disease and foreign affairs, real estate is generally not affected. The current situation is unique to all of us. Therefore, real estate might be taking a hit right now. Rentals might not be making money. Businesses are shuttered. Renovations may be put on hold. The government will step in and help everyone in need. Therefore, payments will be made and projects will start up again.

If you’ve invest completely in stocks, who knows how long it will take to recoup your investments. As of this posting, the Dow Jones has risen about 8%. Is the start of an upward swing? Or is this because a stimulus package may be agreed upon soon? Either way, it’s a good sign for investors. Anything to stop the plunge helps. But, we don’t know what will happen tomorrow, next week or next month. It’s important to at least consider looking at real estate as an investment.

You Must Self-Direct

Remember, you must self-direct your retirement account(s) if you wish to invest in real estate and other alternatives. The most popular plan is the Self-Directed IRA. By self-directing you IRA, you are not limited in the types of investments you can make. Real estate remains the most popular alternative asset among IRA investors. It offers so much flexibility. You can choose a steady income from a rental property. Alternatively, you may wish to invest in a large project or fix-and-flip. Lastly, you can invest smaller amounts of money in real estate funds or crowdfunding projects.

There is one more option if you are self-employed (or have an owner-only business) and that is the Solo 401(k). If you are eligible to utilize one, it is a slightly better option than the IRA. This is because a 401(k) does not adhere to the UBTI rules, which an IRA must. Foe one, you don’t pay taxes if you need to borrow money for your real estate purchase. Further, if you are dealing with a business (such as buying and selling many homes during the year), you will not be faced with more taxes.

In the long run, it doesn’t matter which plan you opt for. Both are excellent vehicles for real estate investing. Remember, all income and gains generated flow back into the plan tax-free. If you use a Roth option, all qualified withdrawals are tax-free!

Be Vigilant

The last thing we want to mention is to remain vigilant. There are far smarter people than any of us dealing with this virus. We must heed their warnings and advice. The sooner it stops spreading, the sooner we can all back to normalcy. This includes ensuring our future is safe financially. Learn more why real estate vs. stocks should be considered for your retirement portfolio. Speak with a financial advisor and make a plan for your savings. Whatever you do, be vigilant!

As always, thanks for listening. If you are cooped up at home with nothing to do, please check out our SoundCloud page for more podcasts. You can also check out YouTube for tons of educational videos! Be safe everyone!


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