By Brad Beasley
Certified Public Accountan


"Beasley, Mitchell & Co. were recently named the 2nd fastest growing CPA firm in the country by Inside Public Accounting"

 

 

 

Traditionally, individuals place their assests in four types or “buckets” of investments:

  • Stocks
  • Bonds
  • Gold
  • Real Estate
    • In a recent op-ed piece from Fortune Magazine, Warren Buffett, the founder of Berkshire Hathaway

      explained why he chooses stocks over the other investment buckets. In his piece, Buffett does not address the real estate investment in detail. However, real estate should be an integral piece of any well-balanced portfolio. As you read the details of the investments below, keep in mind that with the exception of the Gold investment, any of the other three can be purchased in your Individual Retirement Account (IRA) or possibly your 401(k)

      Stocks: Stocks of publicly traded companies are the favorite investment of mutual funds and professional money managers. Stocks offer an inflationary hedge, while (in the case of dividend-paying stocks) possibly generating an annual income stream. The stock investment does bear the brunt of the risk in the overall investment arena, as factors not directly related to a company’s performance may drive the stock price up or down.

      Bonds/US Treasury Notes: Bonds and US Treasury Notes are normally a safe haven asset class for those nearing retirement or those that want to “flee” from the risk of the stock market. What investors may not realize is that the Bond market is just as sophisticated as the stock market. Some of the people I talk to say that bonds are safe, because in the end, I will get my money back. In today’s market this is not true. Given the propensity for bond issuers to constantly chase the current lowest rate, even 5-year bonds are being called well before their maturity date.

      Gold/silver and other commodities: This is a purely speculative asset class. Gold does not make more gold. Gold does not generate dividends or interest. It is a pure growth play. Even with the recent spike in gold prices (which have fallen dramatically as of the end of May) there is a fear of a “Gold Bubble.”

      Real Estate: The asset class thatMr. Buffet did not mention can offer some of the best features of all three asset segments. When you are informed of the real estate market that you are investing in (this is my shameless plug to use a Realtor), and you understand the drivers of land demand and rental demand, you can make an informed decision and possibly find a “unique” asset. In the right market condition, you can find a property that can get the appreciation of a solid stock, along with monthly rent with rates that exceed some of the best bonds in the market. Additionally, given the sustained downturn in the real estate market, the rental market has become a hot bed for investing. The tax benefits of owning real estate can create a legal tax shelter where the depreciation deduction for your property can possibly offset the rental income and leave you a positive cash flow with no tax effect.

      One of my favorite Buffet quotes is “wide diversification is only required when investors do not understand what they are doing”. If you understand your local real estate market you may be able to find some properties that can serve your entire portfolio.

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