You think you’ve been getting a pretty good return on your stock investments, but have you really? In this video article, I dissect stock market returns to discover that the returns are only a fraction of what you think they are.
For example, did you know that the ups and downs of the stock market substantially reduce the average annual returns? What about fees and taxes? What’s the effect of inflation?
Watch the video below (or keep on reading) to learn the surprising truth about the actual returns of the stock market that your financial advisor won’t tell you.
Over the last 15 years, the stock market has generated an average return of 7%. So, if you invested $100K in 2004, your portfolio would have been worth $277K in 2018, right?
Those numbers only work if the return is 7% every single year. But some years, it was higher. Others were a lot lower, plummeting to something like –25% in 2008! When you take a hit like that, your principal goes way, way down.
Market volatility means that an AVERAGE return doesn’t reflect an investor’s ACTUAL return.
If you plot the ups and downs, you find that an investor who put $100K into the stock market in 2004 actually earned just $225K—which works out to a much lower 5.5% return.
Follow the link to this video blog for a more detailed analysis of how volatility can crush your stock portfolio.
Fees are yet another factor to consider when you’re comparing returns. Mutual funds typically come with fees of at least 1%. Sometimes they’re as high as 2.5%. ETFs carry fees of about 0.5%, though they can be lower.
If you invest in a combination of mutual funds and ETFs, let’s say you pay an average annual fee of 1%. Remember that 5.5% return you earned between ’04 and ’08? Sorry, it just went down to 4.5%.
Let’s be clear: Multifamily syndications come with fees, too. The difference is that the returns from syndications are after fees whereas the stock market returns you read about in the paper are before fees.
One more thing that impacts your return on investment involves taxes. If you sell your stock portfolio at the end of that same 15-year period, Uncle Sam takes 15% in the form of capital gains taxes. And that pushes your 4.5% return all the way down to 4%.
Taxes in multifamily are significantly less. The rules around depreciation allow real estate investors to claim a taxable loss on investments that actually earned substantial gains! At the end of the day, you pay darn near zero in capital gains.
Learn more about the extraordinary tax benefits of multifamily in this blog video.
If you’ve been comparing average annual returns in the stock market with the returns of multifamily syndications, you’re not comparing apples to apples. A 7% return sounds pretty good until you consider the impact of market volatility, fees and taxes—which knocks you all the way down to 4%.
On the other hand, real estate syndications are more clear-cut in terms of returns. Multifamily is less vulnerable to market cycles, fees are included in the projections, and capital gains taxes are substantially lower.
Want a more detailed comparison of the stock market vs. multifamily (including the numbers if you’re a numbers person)?
Then download my Special Report “What’s the Best Investment? Stocks or Real Estate?”