{"id":30534,"date":"2012-06-28T09:42:49","date_gmt":"2012-06-28T13:42:49","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/06\/if-i-may-slander-my-profession\/"},"modified":"2012-06-28T09:42:49","modified_gmt":"2012-06-28T13:42:49","slug":"if-i-may-slander-my-profession","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/06\/28\/if-i-may-slander-my-profession\/","title":{"rendered":"If I May Slander My Profession\u2026"},"content":{"rendered":"

By The Sizemore Letter<\/a><\/p>\n

One of my favorite scenes in Martin Scorsese\u2019s The Departed<\/em> is the exchange where Jack Nicholson asks Leonardo DiCaprio what a nice kid like him was doing in the South Boston projects. \u201cAnd if I can slander my own environment, it makes me sad, this regression.\u201d<\/em><\/p>\n

Unfortunately, I find myself asking the same question about my profession at times.\u00a0 If I may slander my <\/em>environment a little, it makes me sad to see people trust their financial security to the fickle whims of the stock market.\u00a0 At best, it is a cold game of chance, and at worst\u2014as the debacle of the Facebook ($<\/span>FB<\/a>) <\/strong>IPO showed\u2014it\u2019s a game that has been rigged against them.<\/p>\n

To be sure, there are ways to mitigate the worst risks of stock market investing.\u00a0 Never buy or sell on a \u201chot tip\u201d unless you\u2019ve done your homework first and have reason to trust the source.\u00a0 Avoid microcap and penny stocks with anything other than your \u201cplay money.\u201d\u00a0 If you use an investment advisor or money manager, make sure they use a reputable third-party custodian, lest you fall victim to a Bernie Madoff-style Ponzi scheme.<\/p>\n

Getting more into my areas of expertise, focus on dividends, though beware of chasing high dividend yields<\/a>. Focusing on dividends and cash flows offers a degree of safety that a buy and hold (and pray) strategy can never offer, and you can realize a respectable cash return even in a down market.<\/p>\n

But the best way to avoid taking unnecessary risk in the capital market is to refrain from putting your entire life savings into it.\u00a0 <\/strong>Make sure that a significant chunk of your net worth and current income come from outside the traded markets.<\/p>\n

This might sound like odd advice coming from a man who earns his living investing in the capital markets, but it is the only sound advice.<\/p>\n

Think about it for a minute; what did your grandparents do?\u00a0 Before the democratization of the stock market through mutual funds and 401k plans, people still invested their savings.\u00a0 They still accumulated wealth, but they were more creative in how they invested it.<\/p>\n

Let me throw out an example. My grandfather owned a small warehouse and shop floor in Fort Smith, Arkansas.\u00a0 The rents generated from that property alone were sufficient to cover my grandmother\u2019s modest retirement needs after he passed away.\u00a0 He would have never left her financial security hanging on something as fragile as a 4% withdrawal rate from an index fund. (Ironically, given the theme of this article, his stock and bond portfolio ended up throwing off a lot more income than his warehouse, but he had no way to know that ahead of time.)<\/p>\n

I\u2019ve written before about rental houses as an investment (see \u201cHere’s the catalyst for a housing rebound<\/a>\u201d), and I would like to reiterate that recommendation today. I know of no other legal investment that allows for both tax free current income (technically \u201ctax deferred\u201d for you accountants out there) and capital appreciation that will likely at least keep pace with inflation and<\/em> allows you to do it all with borrowed money.<\/p>\n

Yes, I know.\u00a0 Home prices are falling.\u00a0 Americans are broke.\u00a0 There\u2019s an enormous backlog of foreclosed properties that have to be worked off.\u00a0 All of this is true.<\/p>\n

But it is also true that new construction has been close to nil in recent years even while the population has grown and that mortgage rates\u2014even for rentals\u2014are at low levels most of us never dreamed possible.\u00a0 Nationally, the price-to-rent ratio<\/a> has fallen to levels not seen in well over a decade, and in many markets it is far cheaper to buy than rent.<\/p>\n

On balance, it would seem that flattish prices would be more likely than large declines in most areas, but that is not really the point.\u00a0 I\u2019m not recommending you buy-and-hold the Case-Shiller Housing Index (sadly, there were ETFs to track this for a while; thankfully, they folded).\u00a0 I recommending you put on a good pair of walking shoes and that you look around for a handful of rental properties that you can reasonably expect to rent out at a profit after allowing for debt service and expenses.<\/p>\n

To clarify, I\u2019m not recommending you quit the stock market altogether.\u00a0 There is money to be made for those with the patience and emotional temperament for it, and stocks\u2014like rental real estate\u2014can be fantastic generators of cash income.<\/p>\n

But they shouldn\u2019t be the only asset you own, and you shouldn\u2019t bet your retirement on capital gains that may never come.<\/p>\n

If you liked this article, consider getting Sizemore Insights via E-mail<\/a>.\u00a0 This article first appeared on MarketWatch<\/a>.<\/em><\/p>\n

No related posts.<\/p>\n","protected":false},"excerpt":{"rendered":"

By The Sizemore Letter One of my favorite scenes in Martin Scorsese\u2019s The Departed is the exchange where Jack Nicholson asks Leonardo DiCaprio what a nice kid like him was doing in the South Boston projects. \u201cAnd if I can slander my own environment, it makes me sad, this regression.\u201d Unfortunately, I find myself asking … <\/p>\n

Continue reading “If I May Slander My Profession\u2026”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-30534","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/30534","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=30534"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/30534\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=30534"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=30534"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=30534"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}