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Which Investment Makes More MONEY? House or S&P 500

Investing Simplified - Professor G・14 minutes read

Investing in the S&P 500 can match inflation rates and offers historical appreciation, contrasting with the belief that houses are the best investment. Financial advisors' fees can significantly impact lifetime returns, with renting also being financially beneficial due to lower costs.

Insights

  • Understanding the impact of fees is crucial in financial planning, as even seemingly small percentages charged by advisors can significantly diminish lifetime returns.
  • The distinction between buying a primary residence and investment properties is essential, with the former requiring monthly payments and the latter generating income, highlighting the diverse nature of real estate investments.

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Recent questions

  • What are the advantages of renting over buying a house?

    Renting can be financially advantageous due to lower costs and peace of mind regarding maintenance responsibilities. Unlike owning a home, renters do not have to worry about costly repairs or property taxes. Renting also provides flexibility to move without the hassle of selling a house. Additionally, renting can be more affordable in certain markets where housing prices are high, allowing individuals to save money for other investments or expenses.

  • How do financial advisors' fees impact lifetime returns?

    Financial advisors charging 1% fees can take up to 28% of lifetime returns, highlighting the importance of understanding costs. While financial advisors can provide valuable guidance and expertise, it is essential to consider the impact of fees on investment returns. High fees can significantly eat into potential gains over time, making it crucial to evaluate the cost-benefit of working with a financial advisor.

  • What is the significance of opportunity cost in decision-making?

    Opportunity cost plays a crucial role in decision-making, as illustrated by comparing house investment returns to S&P 500 potential gains. When making financial decisions, individuals must consider the potential benefits of alternative choices foregone. For example, investing in a house may offer appreciation and equity growth, but it also ties up capital that could be invested in other assets like the S&P 500. Understanding opportunity cost helps individuals make informed choices that align with their financial goals.

  • What are the benefits of investing in rental properties?

    Rental properties offer various benefits, including cash flow, equity growth, and tax advantages. Unlike owning a primary residence, rental properties can generate income through rent payments, providing a source of passive income. Additionally, rental properties typically appreciate over time, building equity for the owner. Moreover, investors can take advantage of tax benefits such as deductions for property expenses and depreciation. Overall, investing in rental properties can be a lucrative strategy for building wealth and diversifying a portfolio.

  • What is the recommended investment strategy for individuals?

    Starting with an S&P 500 investment is recommended for most individuals, followed by diversification with rental properties for a balanced portfolio. The S&P 500 historically offers solid returns that match inflation rates, making it a reliable choice for long-term growth. Diversifying into rental properties can provide additional income streams and asset appreciation, enhancing overall portfolio performance. By combining both traditional investments like the S&P 500 with real estate assets, individuals can create a well-rounded investment strategy that maximizes returns and minimizes risk.

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Summary

00:00

"Real Estate vs. Stock Market Investments"

  • The speaker bought their first house in 20120 before the pandemic, building over $150,000 in equity within 3 years with a $30,000 down payment.
  • Investing in the S&P 500 has historically matched inflation rates, contrary to popular belief about house appreciation.
  • Financial advisors charging 1% fees can take up to 28% of lifetime returns, emphasizing the importance of understanding costs.
  • Renting can be financially advantageous due to lower costs and peace of mind regarding maintenance responsibilities.
  • Opportunity cost is crucial in decision-making, illustrated by comparing house investment returns to S&P 500 potential gains.
  • Buying a primary residence is not an investment as it requires monthly payments, contrasting with investment properties generating income.
  • BiggerPockets.com offers tools for calculating rental property costs and income, aiding in decision-making between property investment and S&P 500.
  • Houses typically appreciate at around 3.8% annually, with additional costs like repairs and tenant management.
  • Rental properties offer cash flow, equity growth, and tax advantages, while the S&P 500 historically appreciates over 10% annually.
  • Starting with an S&P 500 investment is recommended for most individuals, followed by diversification with rental properties for a balanced portfolio.

14:12

"Three ETFs for Simple Investing Portfolio"

  • Portfolio includes three ETFs
  • Video provides guidance on creating a simple investing portfolio
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