Stock Market or Real Estate
Should you invest in the stock market or real estate? This is a very common question many investors have. Both offer passive income opportunities, the option to use leverage, and have proven track records for building wealth. On top of this, both assets have minted many millionaires, and even some billionaires.
So which one should we choose?
Real estate delivers
Real estate is always a sure bet for building wealth and I believe we should all have some in our portfolio. It has minted more millionaires than any other asset class. We want this powerful asset working for us.
However, I want to share with you the story of when the stock market was actually the better choice!
Sometimes stocks actually do better
Kurtis from Delve into Money got into real estate and later regretted pulling money out from the stock market to fund his project. This is a terrific story that not all investments go as planned and we must be mindful of our risks.
What I love about his story is how he didn’t give up, course corrected, and he’s taking great strides towards financial freedom.
I want to introduce you to my good friend Kurtis
Kurtis, could you give us a quick intro?
Hey everyone, I’m Kurtis, 35, live in Oklahoma, and I was raised by my parents to have a deep respect for money. They taught me the concepts of prudent living and saving as much as possible. I went to college at Oklahoma State University and majored in Accounting.
Once out of college, I moved out of state for a short time, but eventually returned and took a job close to home. From there, and through some connections, I ended up as the CFO of one business only to move and become the CFO of another civil engineering firm.
All told, I’ve been a CFO for 10 years.
Image Caption: Kurtis and his wife are expecting their first child next month.
Summarize how you got started with investing
As I started working in my 20s I felt I had all the time in the world and so I didn’t take investing seriously. I always thought I had all the money knowledge I needed to succeed, and so I could put it off for later.
When I turned 28, I realized I needed to buckle down and get serious.
I started by saving with our company match and then my Roth IRA.
This translated to about 15-20% of my income, which sounds awesome but I had missed a great opportunity to save more had I taken my finances more seriously when I was younger.
What did your portfolio look like in your 20’s?
I was strictly in mutual funds and gold. It’s amazing to see how the narrative has changed, because I look back at the fees I paid and cringe. I got into gold in the mid-2000s and returns have been horrible since.
I held pretty traditional allocations of domestic, international, and international emerging markets. The gold was less than 5% of my overall portfolio.
So tell us how you got into real estate?
A few years after I got married I started looking for a new house for us to live in. While looking, I came across a Sheriff’s sale house that I loved. I was convinced the neighborhood was up and coming and that we could renovate it and make good money.
Sorry, what is a Sheriff sale?
A sheriff’s sale is an auction of properties that are either foreclosed or have tax liens. The sales are announced and anyone can attend and bid on the properties. You can typically obtain a list in advance and research the properties to the best of your ability.
Did you buy the property?
I ended up buying the house with my Father and we decided to flip this house together. I did not have the cash to flip it, so I pulled my contributions out of my Roth IRA.
I did this for a few reasons. One, If I put them back before next tax season, there would be no tax impacts. Two, I believed I could beat the market returns.
I failed on both.
First, the renovation took too long and I couldn’t put the contributions back. Second, while we made money, when I did the analysis we made less than the stock market.
I worked every night and weekend for close to 10 months and I came away with less money than if I’d just let it sit in my Roth IRA. This was a bitter pill to swallow.
Flip House Before & After Pictures
Image Caption: Before and After shots of the home reno bought through the Sheriff’s auction.
Anything Else?
Oh, I got one more to add.
Remember, this was just an investment property and this all started by looking for a new home for us to live in. Later that same year, a realtor who knew what we’d been looking, called with an off market deal.
The house was priced well and checked all the boxes. My wife and I made an offer, thinking it would be rejected. But they accepted it!
Very quickly we went from owning just one home to now owning three!!
So wait, you ran 2 renos at the same time?
By the time we sold the flip in 2017 I had been running every evening, every weekend, on either the flip or the new personal house. I was EXHAUSTED. I gained 15 pounds.
For 10 months of work, we got a 19.5% return.
Okay, not the 35-40% we thought, but okay. But this was just the tip of disappointment. Because it had taken so long, I was unable to redeposit my Roth IRA funds.
When I analyzed the stock market returns during the same period. My heart sank.
I don’t want to get into it.
Sorry, bud, we gotta dig into this
Okay, fine but just know you’re pushing on a tender wound for me.
Flip Return: 19.5% with hundreds of hours invested over 10 months.
S&P 500 return: 13.9% with no effort
My time is worth more than just a 5.6% return.
However, the actual loss goes deeper when I factor in the money I was unable to get back into the IRA:
Removed for the home renovation : $31,000
Reinvest back after the home sale: $12,000
If I didn’t touch, today would be: $76,059
Instead: $29,442
Taking this money out cost me dearly. Remember, I worked 10 months for this!
Taking all this into account, how do you invest today?
Today I’m only invested in the stock market and cryptocurrencies.
As far as allocations of assets, my planned allocation is 50% US, 30% International (split evenly between developed and emerging), 15% REITs, and 5% crypto. Up until 2-3 years ago I also owned bonds, but sold all of them off.
I’m planning to get back into real estate, but with having our first child next month we’ve put this on hold.
What lessons would you tell your 20 year old self
Network
Network until you’re uncomfortable and then keep networking some more. I look back at the connections I could have made and see a ton of missed opportunities. The relationships you make today could be a job opportunity in a year. At minimum, be willing to put yourself out there, share your desires and ask questions… they’re all valuable skills that will serve you well for the rest of your life.
Action
If you have a conviction or curiosity, don’t let anything get in the way of digging into it. Quit putting off action. You need to be ruthless about what you spend your time on so you can explore your convictions.
I didn’t do this for myself and it resulted in me putting off investing more seriously, getting into real estate, and digging into crypto. If had acted, it’s possible I would have bought Bitcoin when it was under $100. I cannot tell you how big of a bet I would have made, because trying to would be revisionist history. But at the time, I wanted to sell my physical gold and silver, which was worth over $2,000.
If I’d invested that into Bitcoin it would be $117,000 minimum. The lesson I learned is not to delay being curious and have the courage to act.
Career Plan & Goals
Create a career plan and goals. If I’d sat down back then and asked what I wanted in 10 or 20 years, I couldn’t tell you. I guarantee the answer would be different than my answer today, but it would have forced me to think about retirement and what I wanted.
While I had the head knowledge, not sitting down to think about my future self resulted in me doing the bare minimum with investments.
It resulted in me taking the path of least resistance.
The path of least resistance is going to get you where everyone else is going. Don’t take that path. Take the path that requires commitment. Take the path that requires you to get uncomfortable.
You will not regret it.
Journaling
Document your big decisions. If I was journaling my decisions, I would not have chosen to do the flip house.
While I don’t regret the decision, because we learned some great lessons, it was not a decision that lined up with our goals or one that I did enough analysis of as it pertains to the effect it could have had on my life.
Journaling your decisions before they happen creates space and time for you to process. Reviewing that journal later helps you understand your motivations at the time and better assess how you can get better.
You need a system for examining opportunities in life and decision journaling is a great way to start this system.
Final Words
I care about investing because I care about my future. If you don’t, no one else will.
I want to live with intention.
Living with intention means a lot of things and could mean something different to you. To me it means building a life today that will create the relationships and monetary equity so in the future I have the freedom to achieve monumental things.
My ultimate goal, my ultimate purpose, is to create a family legacy and help others do the same.
This world is so much bigger than us. We need to live like it.
Reach out to Kurtis
If you would like to reach Kurtis, the best place to reach him is on Twitter at @justkwh or subscribe to his newsletter at digest.delveintomoney.com.
