Real Estate vs. Stocks: Doomsday Scenarios

investing doomsday scenarioIn business, leaders always weigh risk and consequence.  If something is low risk but very high consequence it is best to avoid it.  It’s the same when investing except people often ignore it thinking that it will never happen to them.  It’s the same type of psychology that has us buying lottery tickets against all odds.  We feel we are different.  But we really aren’t.  So what are the risks of buying stocks?  Well, you could have bought into an Enron or a Worldcom or worse still, have given money to a ponzi master like, you know who.  But there are other ways to lose your shirt – you could have bought a stock just before the fundamentals went all wrong like Blackberry which got bushwhacked by the iPhone.  Or buying a major stock like Citigroup at an all time historic high and then languishing at a fraction of that price.  You don’t have to be dumb to make these mistakes – they can happen to the best of us. The result is a large bite out of the savings that you earned through hard work.

Now, consider real estate investment.  And let us add rental property income to the discussion.  Your worst case scenarios are repair, vacancies and price drops.  If you have done an inspection you should know the condition of the house and if you have an appraisal you should know the value of the house.  Repairs can run you a few thousand dollars a year if you did not do your due diligence but it will not wipe out your investment.  Similarly, your property may stay vacant for several months causing a few thousand dollars worth of pain.  But neither of these are Enron.  The price of your property is not going to fluctuate in roller-coaster fashion like the stock market.  A low market comes back eventually while a company whose strategy has failed may never come back.  The stock market doomsday scenario dwarfs its real estate equivalent.  HomeUnion can help you with due diligence so that you minimize your risk and avoid nest-egg trauma.  Explore HomeUnion Cash Flow Zones and buy a real asset on Main Street.

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