I was listening to the news the other day and heard the reporter exclaim that the stock market had dropped another 7 percent in August and cost investors over one trillion dollars. He went on to report on other news without skipping a beat, like it was no big deal. One trillion dollars, that comes out to $3,333 for every man, women and child in this country. Maybe to some people one trillion dollars isn’t a big deal. Take the US government and our political leaders, for instance, who just approved a federal budget deficit of 1.2 trillion dollars like it was no big deal. Oh sure, there was political posturing to make it look like it was a big deal but that was all a show to save their political career in the next election cycle.
To put a little perspective on what a trillion dollars is let’s look at the guy on the street working his minimum wage job. He would have to work 66,312,997 years without spending a penny to earn one trillion dollars. What’s that you say, he could invest the money and with interest from investments he’d be able to accomplish it much sooner. Oh, that is true unless he was unlucky enough to have his money invested in the stock market when it lost 7 percent in August. Just think, if our imaginary guy could have live long enough to earn that trillion dollars and invested it into the stock he certainly would have died of a broken heart when he lost it all in the stock market.
Don’t get me wrong, I believe that over time investments in the stock market can produce profits. However, I don’t believe that it is wise to place all your investment dollars into one investment vehicle. Even the talking heads on television speak about diversification, but they talk about diversifying into stocks, bonds and paper and don’t mention other types of investments. What other investments are out there? My favorite investment is real estate. Okay I have to disclose, just like the talking heads make their living form those people who invest in the stock market I make my living from those people who invest in real estate.
But real estate is a different type of investment from those traded in the stock market. While you can invest in a REIT, a publicly traded company that invests in real estate, you can also invest in a single property with or without partners. Beginning real estate investors are those people who choose to purchase a home rather than pay rent. More advanced real estate investors purchase duplexes, apartments, office, retail or industrial buildings. The beauty about the more advanced real estate investments over the beginning home purchase is that with the home purchase you as the investor are working each day to earn the money necessary to pay off the loan on the property where with the more advance real estate purchase your renter is working every day to help you pay off your loan. Just think, rain or shine, day after day, week after week, month after month, and year after year whether you are working or not your renter is so that you can pay your loan.
There is the argument that the same thing is occurring when you are invested in the stock market and while that is true, try to go out and place your hands on one thing that you own when invested in a stock. Let’s say you own shares of Coca Cola, can you walk up to any one item used in the bottling or delivery of that product and say that it is yours. No, not really because your investment is in the earning potential of that company and not its physical assets. With real estate you
can drive by that shopping center you have an ownership interest in and actually say that X percent of that center is mine and while today I’m getting rent from the tenants one day my investment group will sell it and I will get my share of the sells proceeds. Most certainly the price the property is sold for will be much higher than the day it was purchase. Try doing that with your investments in the stock market. No big deal you say. I say, think about the trillion dollars.