Investments should primarily be made based upon your financial goals, your stage-in-life savings that you have, your risk-orientation and so on. But at the core of it all, you are looking for the best return for the amount of risk that you are willing to tolerate. The stock market has many flavors for you, e.g. growth stocks which are stocks that may rise rapidly but carry a degree of risk; income stocks which are those that throw out dividends and so on. Your adviser will ask you to divide your holdings based upon your risk profile. You make money when you sell, or from dividends and there are no tax offsets other than prior losses. To get a capital gains treatment you have to hold that stock for over a year, else you are taxed at ordinary rates. Uncle Sam rules you. If you are after passive income, welcome to what may become the new world of dividend taxation at 43%. Uncle Sam Rocks.
Now consider a real estate investment. You can depreciate the house, not the land, over 27.5 years, thereby off-setting part of your taxes. Your investment income is sheltered and is taxed at ordinary income rates and not the potentially high dividend rates for stock, making this a much better after-tax passive income source. Finally, when you sell, you can roll your profits into another property in a 1031 exchange and avoid paying taxes on your gains. We will talk more about these in my future blogs.
So the message is clear. Stop occupying Wall Street and consider buying a piece of Main Street. Own a real asset and not Enron, and one that comes with great tax benefits. To buy right on Main street visit HomeUnion® Cash Flow zones and we will get you started.