Wealth isn’t created by a job: Jobs only create income. In contrast, financial freedom is always created through investments. This is because investments can work 24-7 for you, doubling in value over and over during your lifetime.
For example, investing is how you double $100K into $200K, $200K into $400K, $400K into $800K, and $800 to $1.6M. That rapid wealth growth from $100K to 1.6 million only requires four doublings, which if you get a 20% rate of return, you can do in only 14 years.
With real estate, achieving a 20% rate of return is extremely doable, but obviously, that kind of rapid wealth creation would be very tough to do with a job.
Put simply: Wealth has a compounding effect, while income from a job is linear.
This is why you need to learn to invest.
Real Estate vs. Other Investment Options
With that in mind, what should you invest in? To make this decision, you need to compare real estate against your other investment options, so let’s do that below.
The problem with stocks is that equity market valuations are now at the highest level they have ever been. According to economists, they would have to fall by nearly half (~45%) just to drop to the highs of the 2000 to 2002 “Dot Com” bubble. John Hussman, a renowned economist, recently stated, “The [stock] market is in the biggest speculative price bubble in modern history.”
This means it is extremely risky to be in stocks right now, because a market correction to historical norms could destroy your wealth.
The problem with bonds is that they barely pay anything, which makes it extremely hard to outpace inflation. 10 year treasury bonds only pay a couple percent. The problem with this is that Consumer Price Index (CPI) data recently came out and year-over-year inflation is 6.2%, so you need to make at least 6% per year just to beat inflation.
Plus, if we use the CPI methods from the 1970s (before they started playing games and pulling out relevant items from the inflation index), we are at an astounding 14% rate of inflation!
Cryptocurrencies have enormous potential but are a hugely volatile asset class, so they can easily drop 80-90% in value on you in a short period of time. While I strongly believe in their long-term potential, you better be prepared for a wild ride if you want to invest in cryptocurrencies.
Also, crypto doesn’t pay cash flow unless you stake it, and if you do, then you’re not technically in control of it anymore. As the old saying goes, “Not your keys, not your crypto.” Meaning, staking comes with risks.
In contrast, real estate is the asset class that has most reliably created wealth across all time periods, cultures, and geographies. It is a real, physical asset that can’t be disrupted by technology. Humans will always need shelter and land has a fixed supply. Real estate benefits from price appreciation, leverage, massive tax advantages, debt paydown by tenants, and cash flow.
Because of leverage, you can often get returns of 20%, 30%, or higher as an internal rate of return (IRR). Put simply, real blends stability with superior returns, which is why it is the favorite asset class of the wealthy.
What questions do you have about real estate versus other investment options? Ask them in comments below.