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Investing in real assets only

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  • Avatar llessac15 
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    I like to listen to different podcasts while exercising. I came across the “Wealth Formula” podcast a while back. The guy , Buck Joffrey MD, seems to hate investing in paper assets like stocks and bonds. He’s all about “real assets” such as rental property, land, etc… His main focus is passive income production through these items. I recently listened to him interview Dave Denniston with “The Freedom Formula…” Buck was fairly aggressive in his assault of Dave’s more Bogleheaddish approach and even trashed WCI during the interview. It’s was very interesting to hear. He interviewed WCI a while back also. I haven’t had a chance to listen to that podcast yet.

    I understand we all have our personal opinions, but this guy seems to be very set on there only being one “road to Dublin” and index investing is definitely not it. I personally believe that as long as your net worth is improving each year, you are likely doing things right. Saying that only one of these (real assets vs paper assets vs paying down debt) is right seems very narrow minded. We can debate all day about which of the 3 are better, because they all have their pros and cons. None are completely wrong or completely right. All 3 will put you on a track to improving your financial self over time, which is our ultimate goal with our money.

    Thoughts?

    #187524 Reply
    ENT Doc ENT Doc 
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    Joined: 01/14/2017

    An increasing net worth year to year is not a good assessment of whether someone is doing something right.

    I wonder if this guy would object to owning shares in real estate ventures. I also wonder if he realizes that securities are claims against current and future assets. Just like when you invest in real estate – you are buying a current asset (using someone else’s money mind you) and have claim on future assets (cash flow, full price of the home). I see little fundamental difference with the exception of leverage and annoyance. Both are high with real estate investing.

    #187525 Reply
    White.Beard.Doc White.Beard.Doc 
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    Joined: 02/06/2016

    We did all three, invest in paper assets, invest in real estate, and pay down debt.  And all of those things worked out well.

    Our highest returns were on real estate.  But those investments required extra work.  Higher risk, higher reward, more work.

    The paper assets also did well, but not as well as the real estate.  However, there is almost no work involved in investments in paper asssets. Easy peasy.

    Paying down debt also contributed to a growing net worth, but this gave us the lowest yield financially over the years.  However, the psychological yield on zero debt is very high.  So for the peace of mind, also highly recommended.  Lower risk, lower reward (financially speaking), but so worth it.

    If you want to develop extreme wealth, real estate can lead you down that path. But you can lose it all if you don’t know what you are doing.  Like most aspects of investing, the risks tend to balance out with the rewards.

    Avatar llessac15 
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    ENT Doc, While I’m the first to say that I am not really concerned with my net worth because I don’t factor my real estate equity into my FI goal, I don’t agree that an increasing net worth is not a good gauge the you’re on the right track. It may not be the best track, but it’s still a good track. Nothing bad comes from increasing your net worth. What I tell new doctors is: If each year you’re saving at least 15% of your gross income and your net worth is increasing, you’re doing better than 90% of other docs. We can improve things as time goes on and they improve their financial education.

    #187548 Reply
    Avatar llessac15 
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    White.Beard.Doc, Thanks for the reply. It’s always good to hear the experience of people who have been down this road before.

    For me, I plan on continuing to build my paper asset nest egg for the next 5-6 years. I will be about half to my FI goal at that point. Then, I hope to start going down the road of buying real estate property to create income streams.

    #187549 Reply
    Avatar adventure 
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    We did all three, invest in paper assets, invest in real estate, and pay down debt.  And all of those things worked out well.

    Our highest returns were on real estate.  But those investments required extra work.  Higher risk, higher reward, more work.

    The paper assets also did well, but not as well as the real estate.  However, there is almost no work involved in investments in paper asssets. Easy peasy.

    Paying down debt also contributed to a growing net worth, but this gave us the lowest yield financially over the years.  However, the psychological yield on zero debt is very high.  So for the peace of mind, also highly recommended.  Lower risk, lower reward (financially speaking), but so worth it.

    If you want to develop extreme wealth, real estate can lead you down that path. But you can lose it all if you don’t know what you are doing.  Like most aspects of investing, the risks tend to balance out with the rewards.

    Click to expand…

    This. For us “We’re doing all three…”, then rest I agree with.

    #187550 Reply
    Liked by llessac15
    ENT Doc ENT Doc 
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    So when my net worth went down with the stock market last year I wasn’t on the right track?

    Or if someone is leveraging themselves beyond reasonable safety but increasing their net worth that’s the right track?

    Increasing your net worth is good, generally speaking. But decreases in net worth are not necessarily indicative of being on the wrong track, nor are all increases in net worth indicative of being on the right track.

    #187551 Reply
    Avatar StarTrekDoc 
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    Joined: 01/15/2017

    Net worth is only a gauge.  It’ll tell you where you’re at during your financial journey.  It won’t tell you if that’s good or bad or the velocity of change from point A to final destination — only where you stand at that moment.  Having multiple buckets shields one more from instability and that’s not a bad thing IMHO.

    FI is about cashflow, not networth.  Networth can be converted into calculations for FI, like the 3% or 4% rule or x25 expenses to net worth.   Having a set passive income from an asset makes the calculation easier, but you still have to be mindful of how certain that cashflow IS.  eg, factoring in realistic vacancy.

    I think it’s foolish to go single asset class.  There’s definitely more than a single road and they all are bumpy at times.  We’re pretty diversified in cash buckets —  Investment portfolio is about 50/50  direct real estate/stock equities.   But we also have significant pensions from VA, Kaiser, and UCalifornia planned to come in to fund 50% of retirement if we RE 55-60 and closer to 80% if closer to 65yo retirement.

    #187565 Reply
    Avatar jacoavlu 
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    Joined: 03/01/2018

    I would contend that “minority ownership of a publicly traded business” is a real asset

    Berkshire Hathaway as of their last filing held about $143 billion (fair market value) in shares of Apple, Coca Cola, American Express, Bank of America, and Wells Fargo. Are those not “real assets?”

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #187571 Reply
    Avatar StarTrekDoc 
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    True, until they go bankrupt and shareholders are the last to be paid in the long line of creditors.   Ask Sears.  Same thing with Real estate share markets.  If you don’t own direct, there are bridges between you and the asset.

    You can say the same thing in precious metals too.

    #187577 Reply
    Liked by StateOfMyHead
    Avatar jacoavlu 
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    good reason to diversify

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #187582 Reply
    Liked by Peds
    Avatar FIREshrink 
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    Status: Physician
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    Joined: 01/11/2017

    I like to listen to different podcasts while exercising. I came across the “Wealth Formula” podcast a while back. The guy , Buck Joffrey MD, seems to hate investing in paper assets like stocks and bonds. He’s all about “real assets” such as rental property, land, etc… His main focus is passive income production through these items. I recently listened to him interview Dave Denniston with “The Freedom Formula…” Buck was fairly aggressive in his assault of Dave’s more Bogleheaddish approach and even trashed WCI during the interview. It’s was very interesting to hear. He interviewed WCI a while back also. I haven’t had a chance to listen to that podcast yet.

    I understand we all have our personal opinions, but this guy seems to be very set on there only being one “road to Dublin” and index investing is definitely not it. I personally believe that as long as your net worth is improving each year, you are likely doing things right. Saying that only one of these (real assets vs paper assets vs paying down debt) is right seems very narrow minded. We can debate all day about which of the 3 are better, because they all have their pros and cons. None are completely wrong or completely right. All 3 will put you on a track to improving your financial self over time, which is our ultimate goal with our money.

    Thoughts?

    Click to expand…

    A fanatic is someone who cannot change his mind, and will not change the subject – Winston Churchill

    #187586 Reply
    PhysicianOnFIRE PhysicianOnFIRE 
    Moderator
    Status: Physician
    Posts: 1535
    Joined: 01/08/2016

    I would contend that “minority ownership of a publicly traded business” is a real asset

    Berkshire Hathaway as of their last filing held about $143 billion (fair market value) in shares of Apple, Coca Cola, American Express, Bank of America, and Wells Fargo. Are those not “real assets?”

    Click to expand…

    I clicked on this thread to say the same thing. Ownership in companies that own factories, retail locations, and products, etc… is very much real. Calling ownership in real estate “real” and referring to ownership in companies (which also typically own real estate, btw) via stock as “paper” shows some bias.

    40-something anesthesiologist and personal finance blogger @ https://physicianonfire.com [Part of the WCI Network] Find me on Twitter: @physicianonfire

    FIRE. Financial Independence. Retire Early.

    #187588 Reply
    Avatar StarTrekDoc 
    Participant
    Status: Physician
    Posts: 2040
    Joined: 01/15/2017

    Owning bitcoin is as tangible than any share ownership hard asset.   As an individual shareholder (or bondholder at that) to get your hands on that said hard asset.  There’s a distinction separate in direct real estate ownership — which is the point — along with folk defending owning their house free and clear.

    Doesn’t matter unless we go back to gold standard only.  USD/Money is fungible until then.

    #187592 Reply
    Avatar Kamban 
    Participant
    Status: Physician
    Posts: 2484
    Joined: 08/01/2016
    I came across the “Wealth Formula” podcast a while back. The guy , Buck Joffrey MD, seems to hate investing in paper assets like stocks and bonds. He’s all about “real assets” such as rental property, land, etc… His main focus is passive income production through these items. I recently listened to him interview Dave Denniston with “The Freedom Formula…” Buck was fairly aggressive in his assault of Dave’s more Bogleheaddish approach and even trashed WCI during the interview. It’s was very interesting to hear. He interviewed WCI a while back also. I haven’t had a chance to listen to that podcast yet.

    Click to expand…

    Call me a cynic but the main reason for his approach is to differentiate himself from the millions saying the same usual things. There are hundreds of blogs on investing with diversification, in equities, slow wealth and so on. One more like that will be in the 577th page on a Google search. By being dogmatic and aggressive he can increase page views and podcast downloads, which his advertisers and affiliates want. Thus he becomes wealthy by not changing his mind or the subject. There is no such thing as a bad publicity when any publicity is better than none.

    Smart guy to have figured it out.

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