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Real Estate Or Stocks: Which Is A Better Investment?

Published: 11/05/2020 | Updated: 01/01/2021 by Financial Samurai 238 Comments

Real estate or stocks? That is the question so many of us want to know in order to get rich. As an investor of both asset classes for decades now, the answer comes down to your financial means, risk tolerance, personality, and ongoing returns. Your preference for real estate or stocks will also be highly dependent on where you are in life as well.

We’ve got real estate tycoons and we’ve got stock market tycoons. We’ve even got wealthy bond investors such as Bill Gross who pulled in over $100 million a year when he led PIMCO. Therefore, obviously, you can get rich in real estate, stocks, and bonds.

It’s important to realize there are no renter or cash tycoons. The return on rent is always -100% every single month. Meanwhile, we can only get ~0.5% or so on cash these days, which may not even beat inflation. To get rich, you must take calculated risks.

Even though I worked in equities (stocks) for 13 years, for the average person, I still prefer real estate over stocks. Perhaps it’s because I had a front row seat watching so much carnage during the 2000 dotcom bubble and the 2008-2009 financial crisis that has me jaded.

That said, I firmly believe everyone striving for financial independence should own both stocks and real estate. The percentage weighting of each asset class as part of your portfolio will then be up to you to decide.



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Investing in 2021: Three Strategies for Managing Uncertainty

Published: 10/29/2020 | Updated: 11/08/2020 by Financial Samurai 14 Comments

The following is a guest post from FS sponsor, FarmTogether, a leading farm investing platform. Farmland investing is one way to reduce volatility in your portfolio and generate long-term passive income. Let’s look more into investing in 2021.

2020 has been a turbulent year for investors to say the least. On February 19, 2020, the S&P 500 closed at a record high. The following day it began a steep descent, eventually bottoming out on March 23rd, as the COVID-19 pandemic began paralyzing the global economy. This decline officially ended the longest bull market on record.

Despite a strong recovery in the public markets since March 2020, the US economy is still struggling. With rising COVID-19 cases and uncertainty surrounding the outcome of the presidential election in November, investors have become more hesitant about taking risks.

It is more important than ever for investors to have a clear strategy for managing their portfolios as we enter 2021. Let’s first go over stock market volatility and valuations. Then we’ll discuss three common investing strategies for managing uncertainty in 2021.



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How Online Brokerages Make Money Charging Zero Trading Fees

Published: 10/04/2020 | Updated: 01/15/2021 by Financial Samurai 36 Comments

On October 2, 2019, Charles Schwab announced that it would no longer charge any trading fees. I remember my father using Charles Schwab in the 1990s and being charged $50 a trade. This article will discuss how online brokerages make money charging zero trading fees.

Immediately after the announcement, Charles Schwab stock dropped about 9%, while firms like TD Ameritrade and E-Trade dropped by even greater percentages. Clearly, investors in these names were not happy that these companies would be losing a significant portion of their revenue.

But when fees are cut, consumers generally win, if the firms can stay in business. Thus, the question is how will online brokerages make up for this lost revenue? Another question is what should investors on the platform do?



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Alternative Investments: A Guide To Investing Beyond Stocks And Bonds

Published: 10/02/2020 | Updated: 10/20/2020 by Financial Samurai 15 Comments

The following is a sponsored post from FarmTogether on alternative investments. FarmTogether is a leading farmland investing platform to help you diversify your portfolio. I currently have about 10% of my net worth in alternative investments such as private equity, venture debt, venture capital, and real estate crowdfunding. My goal is to bring my allocation up to about 15% over the next three years.

Conventional investments are the bedrock of just about any financial portfolio. However, those who are seeking higher yields on their investments may be dissatisfied by merely keeping pace with the market by way of a mix of stocks, bonds, and cash. For potentially higher real returns, consider alternative investments.

The world of alternative investments is broad: some investments are riskier than others, and some more popular than other options. Understanding the unique differences of each alternative investment can help ensure you know exactly what your options are, and how to develop a diversified portfolio that’s right for you.



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Ranking The Best Passive Income Investments

Published: 09/29/2020 | Updated: 01/01/2021 by Financial Samurai 372 Comments

If you’re looking to achieve financial freedom before a traditional retirement age, you must build passive income. This post will highlight the best passive income investments to help you get there. Passive income is the holy grail of personal finance.

Why I Focused On Building Passive Income

After about the 30th day in a row of working 12+ hour days and eating rubber chicken dinners at our company’s free cafeteria, I decided I had enough. Working in investment banking was wearing me out. I needed to generate more passive income to break free.

There was no way I could last for more than five years working in a pressure cooker environment like Wall Street. I started focusing on generating passive income in 1999.

However, it wasn’t until the 2008-2009 financial crisis where I became obsessed with building passive income. The previous financial crisis made working in finance no fun. I’m sure many people during the global pandemic are feeling the same way about their occupations as well.

It wasn’t until 2012 when I generate enough passive income ($80,000) to break free from work. And it wasn’t until 2017 when I was able to generate enough passive income to take care of a family ($200,000).

We’ve discussed how to get started building passive income for financial freedom before. Now I’d like to rank the various passive income streams based on risk, return, feasibility, liquidity, activity, and taxes.

I’m updating my passive income rankings for 2021 given so much has changed since my original passive income rankings came out in 2015. A key difference to my best passive income investments ranking is the inclusion of taxes as new ranking variable. After all, tax treatment can significantly affect returns.

The best passive income rankings are born from my own real life experiences attempting to generate multiple types of passive income sources over the past 20 years.



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What Is Considered Passive Income? Analyzing Stock Sales And Windfalls

Published: 09/07/2020 | Updated: 12/07/2020 by Financial Samurai 35 Comments

Generating enough passive income to cover your desired living expenses is the holy grail of personal finance. The problem is, the goal post keeps moving thanks to inflation and life. This post explores what is considered passive income so we can remain disciplined on our journey to financial independence.

What Is considered passive income?
Art by CKongsavage.com

I’ve been trying to build passive income since 1999 when I first graduated college. I knew when my boss told me to get in by 5:30 am that I wouldn’t be able to last for decades in finance.

It wasn’t until around 2017 that I felt I truly had accumulated enough passive income to take care of my wife and son. However, after my daughter was born in late 2019 I once again felt more pressure to provide. My family planning forecast only assigned a small chance we’d have another child due to our advanced ages. It’s funny how life turns out sometimes.

Then, when the government started unleashing trillions of stimulus in 2020, the feeling of having accumulated enough began to fade. With volatility back and interest rates getting compressed, the desire for more capital as a safety buffer increased. In addition, the income-generating potential of various assets are under pressure.

We’ve already seen a slow decline in P2P lending returns, bond interest rates, CD rates, and savings rates. Stock dividend yields and real estate rental yields might not be too far behind.

When it comes to personal finance, you never want to get too complacent. It’s important to always try and anticipate the future.



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The Definitive Guide To Farmland Investing: A Trillion-Dollar Asset Class

Published: 09/01/2020 by Financial Samurai 13 Comments

I’m pleased to share with you a comprehensive guide to farmland investing by FarmTogether, a leading farmland investing platform and Financial Samurai sponsor. Not only is this article full of information, it will evolve with updated information as the landscape changes.

Farmland might be the world’s most promising untapped asset class, and the newest opportunity in real estate investing. Estimated at a value of over $2.5 trillion in the US alone (USDA), returns to farmland in the US have averaged over 10% for the last 47 years (Forbes). 

In fact, from 1992-2016, farmland assets averaged an especially impressive 12% average return, outperforming real estate (NCREIF) at 8.7% and the Russell Stocks Index 3000 at 8.8%. Farmland also has a history of preserving capital in times of economic downturns, displaying an impressive resilience over the past two decades (NCREIF).

Farmland investing is resilient to the economic cycle
Source: Nuveen

Still, it might come as a surprise that until recently, there haven’t been many options for non-institutional investors looking to get involved, aside from making the large investment and commitment needed to buy an entire farm outright. 

Thankfully, this is changing. New technology-driven platforms ours, which was reviewed on the site earlier this year, are offering fractional investment solutions that make it possible for a wider range of investors to participate.

This innovative technology is being introduced to the market at a time of huge changes in farmland ownership – as well as in farming itself – and hints at an unprecedented opportunity for a wider investor audience to share in these promising returns.



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Financial Benchmarks Investors To Gauge Net Worth Performance

Published: 08/31/2020 | Updated: 01/02/2021 by Financial Samurai 55 Comments

Without proper financial benchmarks, you don’t know whether you are getting ahead, staying in place, or getting left behind. Therefore, it’s important to choose at least one financial benchmark on your journey to riches.

There is one consistent observation I’ve noticed in my journey towards financial freedom. Rich people make things more expensive for the rest of us. Given the supply of desirable necessities such as homes, schools, food, and even water is finite, the rich bid up prices far beyond what the middle class can afford.



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Stock Market Performance Under A Democratic Or Republican President

Published: 08/26/2020 | Updated: 01/15/2021 by Financial Samurai 58 Comments

Let us take a look at the historical stock market performance under a Democratic or a Republican President.

Before finding out the answer, I’d like you to guess under what party do you think the S&P 500 has performed the best? From there, we can compare the reality with your beliefs.

After all, one of the keys to being a good stock investor is to remove as much bias from your investing process as possible. It is suboptimal to invest on emotion.

For example, I know several people who decided to sell a majority of their stock holdings in 2016 once Donald Trump won the election. They hated Donald Trump. As a result, they missed out on over 50% in S&P 500 gains.



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Enjoy The House’s Money: Practice Taking Profits To Pay For A Better Life

Published: 07/17/2020 | Updated: 09/22/2020 by Financial Samurai 74 Comments

If you are an investor, it’s important to practice taking profits to pay for a better life. If you never utilize your gains and die with too much money, you have completely lost the point of investing!

One of my favorite areas to take profits is in the stock market and convert the proceeds into real assets like real estate. This way, I increase the chances that my profits will last and provide utility for a very long time.

Practice Taking Profits To Live Your Best Life

What’s the point of investing money? To pay for a better life. I think many of us forget that investing is just a means to an end.

We set up our automatic bi-weekly investment contributions, come up with a better dollar cost averaging framework, and never touch our money because we want to grow our nest egg as large as possible. But eventually, we must spend, or else there’s really no point.

My #1 reason for saving and investing money is so that I never have to work for someone out of necessity ever again. I make this happen by building as many passive income streams as possible.

Can you imagine being in an arranged marriage (check out Indian Matchmaking on Netflix for a clue)? That’s kind of what work is like because there are always new people coming in where you had no say in their hiring. You put up with people you don’t like because you need the money. Eventually, you’ll have enough where you will make a change.

During my first two years of early retirement I was only about 75% sure I had made the right move. Therefore, I continued to live frugally and stayed disciplined with my saving and investing habits. I invested 100% of my severance check in a couple principal protected structured notes so I wouldn’t be tempted to spend any of it.

It’s been over eight years since I last worked for someone else. During this time, I’ve come to realize the fear of running out of money in retirement is completely overblown. We are adaptable and stronger than we know. If necessary, there are so many ways to make extra money.



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