Why You Should Never Invest In Large Cap Stocks

I am not a big fan of the stock market even though Steph and I do have some stock investments.   I keep hearing more and more that people are not comfortable in the stock market and for good reason.   I have had two fairly wealthy people tell me they have zero stocks and will never invest in the stock market again.  Unlike real estate, stocks can be extremely tough to find discount buys and stock prices move so quickly it is nearly impossible to judge when you are at or near the bottom.   Most financial planners will tell you to set up a diversified stock portfolio and let it grow over time.  They will say that is a safer way to make money in the market.   This may be true but let’s take a look at this strategy over the last 13 years.

I want to use a 13 year sample because something really interesting has happened.  On January 11, 1999 the S&P 500 closed at 1,263 and on 11/11/11 the S&P 500 closed at 1,263.  That’s right there has been exactly zero return in almost 13 years.

During this same period there was a low of 676 and a high of 1,565 so it has been extremely volatile so if you are getting in and out at the right time you could make a fortune.   If we take the common advice from our financial advisors we would have made no money and in fact we would have lost money when you account for inflation.   I also want to point out one other thing.  One lesson we can learn from this statistic is that if the stocks you invest in produced dividends you would at least make money even if the stock price did not move.

The point here is that it is important to have at least some investments in income producing assets and it is not always wise to dump a bunch of money into the stock market and expect it to grow.  With rental real estate you are producing income and as long as the deal was good when you purchased it and you got favorable financing you will be able to ride out ups and downs and still be ahead.  There are other investment opportunities involving real estate that does not include dealing with tenants.