me[at]privacy.net wrote:


- quote -

With the exception of the rental property, which I'd like to get rid of,
yes.

Will Trice <wwtrice[at]paragondynamics.com> wrote:

- quote -

OK.... well thanks so much for taking the time to give
advice!!

Its hard to know what to invest in now days.

So do you invest strictly in equities and paper assets
only now days?

me[at]privacy.net wrote:

- quote -

That's been my experience, but as I said, I know others who have been
more successful than me with rental property. And I guess it is likely
that most folks start with a single property or two and expand as their
finances allow (you've got to start somewhere...).

-Will

"Will Trice" <wwtrice[at]paragondynamics.com> wrote:

- quote -

Thanks for that advice

Yes I can see where if one is into rentals its best to
do it big by having a LOT of rentals..... to spread the
risk

So bottom line..... just having one or two rentals may
be a cost center and not a profit center, correct?

<me[at]privacy.net> wrote in message
- quote -

Just my thoughts, but you've really got to like being a landlord to do this.
I currently own rental property and it sucks. Part of the problem is that I
don't have enough units to spread the cost of problems over. In my case,
one problem tenant can eat two years of profit (or more). Of course, in a
high appreciation area this might be different (I'm in an average
appreciation area). No doubt diversification helps a lot. But in the
profit-and-loss column, I've been far more successful in stocks, and I'm not
cut out to be a landlord (and a management company just makes the numbers
worse) so I intend to divest myself of my rental property as soon as is
reasonable (assuming I can talk my wife into it...).

All this being said, I know folks that have done quite well with rental
property. Why are they more successful than me? Because they have better
"luck" (with tenants), they probably have better skills at picking
properties with appreciation potential, and some have more properties to
spread tenant risk over. I enjoy studying companies, but I have no desire
to study real estate, so I doubt that I'll get better at picking properties
or grow my rental portfolio. And I went through a lot of hoops to pick good
tenants, but they still screw you in the end (I'm looking at legal action in
the coming months - more money bled from profits). But most of all, I hate
it.

Again, just my thoughts,
-Will

"Tess Millay" <elle_navorski[at]earthlink.net> wrote:

- quote -

OK

Thanks for that advice!!

I'm just wondering abt HARD assets (real estate) as
investments rather than paper based assets such as
stocks and bonds.

<me[at]privacy.net> wrote
snip for brevity
- quote -

I have never owned rental housing and have only read a
little about it, so I would be out of turn to comment. I
hope others will take this as an invitation to respond to
me[at]privacy.net at length on the subject. Or maybe you would
like to consider starting a new thread on this, to get
others' attention? Googling this group's archives likely
will also turn up discussion of owning a rental unit for
income, and where doing so might fit into one's retirement
planning and allocation.

REITs are a way of reaping some of the income from rentals
(residential, retail store space, office space) without all
the hassles of dealing with tenants, in particular,
evictions when a tenant is violating the contract. I own
several REITs, for income and some diversity. Many portfolio
allocation tools mention having a certain percentage of
one's portfolio in REITs.

REITs in particular had a nice surge in January 2005. So if
anything, at the moment I am considering selling some of
mine that seem overvalued, not buying more. None of mine are
mortgage-based, because I feel the mortgage-based ones have
more risk, particularly in a rising interest rate
environment. Plus, I don't like the complexity of how
mortgage-based REITs make a buck. Call that cowardly or
laziness. I still feel one of the top ten rules of investing
is to understand the product of the company in which one is
buying stock.

One needs to like doing one's taxes if one owns REITs. I'll
have about five categories of taxation this year for the
income from each REIT. Plus, upon sale, past records of
taxes paid on REIT income are very important for calculating
the capital gain.

One of the regulars here also recently pointed out that the
dividend reinvestment plans of many REITs can be generous,
permitting shareholders to buy stock at a not insignificant
discount. I did check this out for one of my REITs recently,
out of curiosity. There were some hoops through which one
had to jump, but otherwise, it looked like a good deal.

Sometimes I wish I could become a partner in owning a rental
unit. That's a hint that, from my reading, they can be
lucrative and warrant more investigation, for those with the
capital.

"Tess Millay" <elle_navorski[at]earthlink.net> wrote:

- quote -

Boy that is GREAT advice! Dead on! Good health and
family and friends are "investments" as well!

However..... back to financial investments.... what you
think abt real estate over stocks and bonds? Such as
buying rental housing, etc?

"Douglas Johnson" <johnson[at]classtech.NOTPARTOFADDRESS.comwrote
- quote -

You remind me of me. (See my response to Iarwain, which
should go up today.) :-)

- quote -


- quote -

Right, I agree. The bulk of one's portfolio (assuming its
large) should have the philosophy of "slow and easy wins the
race" behind it, IMO.

- quote -

How long have you been investing in stocks and/or mutual
funds?

<iarwain_8[at]hotmail.com> wrote
- quote -

Like an S&P 500 index fund?

First, if you're going to be in the market for 20+ years, I
don't think it's a bad time to get in. Things are not
totally out of control. I'm thinking the market will be flat
(which is probably a healthy thing for U.S. society) for
another five years at least. One can try to time it. Or one
can just let reinvested dividends do their job, compounding
return.

Second, I personally have more of my portfolio in cash than
I have had in a long time, but I am still, principally,
simply holding my stock positions, with an eye once in
awhile to sell some that seem overpriced. As for index
funds, I am trying to time re-entry into them IF I choose to
go back. I have enough assets now that I don't have an
urgent need for index funds, except maybe an international
one. Plus I feel huffy enough (or I know I have a heckuva
lot of time to do decent research) that I can pick stocks
and do better than an index fund. Always dangerous to feel
that confident. :-)

Third, what I risk with trying to time re-entry is, say, the
Dow etc. shooting up some ungodly yuppie-driven (and lesser
educated, kinda cattle-driven) 20% or so within five years.
So I try to be strong. If it does shoot up, I hope to say an
emphatic, "So What?" Besides, I still have all these stock
positions. And I'll be selling like mad during the rise, I
suppose.

Fourth, interest rates are up so, per Greenspan et al.'s
plan, I am in fact happy making a pretty much guaranteed 4%
(and rising, though probably more slowly in the next few
years) return for a few years on my cash position, and don't
want to feed a second Irrationally Exuberant monster rearing
its ugly head. That 4% return is not going to get me to my
million bucks goal by age 62, some decade+ away for me. (And
what's a million bucks going to be in today's dollars,
anyway? But that's another discussion.) But again, I have
all these stock positions right now, too, for the greater
part purchased at good "value" prices. (I am not perfect, of
course. One of my blue chip picks is down 10% from a year
ago. But it pays a reliable dividend and has pretty good
fundamentals, etc. So I bought some more at its rock bottom
low... )

Fifth, index funds, stocks, money markets, portfolio
allocation, etc. will do nothing to ensure riches come one's
way without also including the following: (1) Monthly
budgeting on a spreadsheet to ensure living within one's
means, and (2)drinking life to the lees without
materialistic urges that can be easily smote with a little
existential psychology, good family and literature, and
athletics. My most valuable asset: Good health. I wouldn't
trade it for all the money in the world.

I speak as a mortal do-it-yourselfer who these days is
reading one healthy dose of Benjamin Graham (of whom Warren
Buffet might be said to be a protege), the father of "Value
Stock Investing." Most rational strategy I've read since I
started studying portfolio allocation. If Allen Greenspan
does not have a large photo of him hanging somewhere in his
office, I'd be very surprised.

Your turn. :-)

"Tess Millay" <elle_navorski[at]earthlink.net> wrote:

- quote -

We are in violent agreement here.

I think we are about half way through a long term consolidation phase. It will
end when the PE for the S&P 500 is around 10. Maybe 8, maybe 12. So far, we've
gotten here by increasing earnings while stock prices are more-or-less the same.
The S&P 500 reached current price levels in 1999 with a PE of 44. We're now at
a PE of 18.7 by the S&P site.

We could keep doing this relatively benign correction, or we could have a price
pull back to the 650 range, or some combination of both. But we're not going to
have another long term bull market until we squeeze out some more exuberance and
inject a bunch of despair. Maybe another 5 to 7 years.

So in the meantime, I'm trying to make money the way I did in the 70's (the last
time we were going through this type of correction). I'm buying individual
stocks very carefully and emphasizing actively managed mutual funds where the
manager has a long history (10 to 30 years) of success. So far, so good.

For what it's worth, in the interests of full disclosure, I do have a core
portfolio invested in index and balanced funds. It continues to muddle along,
which is all it is supposed to do. All real profits for the last four or five
years have been in the active portion of the portfolio.

-- Doug

- quote -


Tess, given your comments I'm curious as to whether or not you think
index funds are a good investment right now.

"TB" <borekfm[at]pacbell.net> wrote
- quote -

Shiller makes an interesting counter to this, the essence of
which is that one year does not capture a business cycle
nearly as well as ten years does:

---
[Yale Professor Robert Shiller's] book "Irrational
Exuberance," arguing that stock prices were insanely high,
appeared almost precisely at their peak in March 2000. Now
he has updated the book to reflect 2005 valuations and
concludes that, believe it or not, the market is still
irrationally exuberant.

How does he come to this conclusion? After all, stocks are
generally lower than back in the bubble days, and we've had
four years of economic growth to rehabilitate corporate
profits. His answer is simple. As he told me the other day,
all the competing theories boil down to one
easy-to-understand calculation: "The trailing P/E ratio for
the S&P composite is still around 25, vs. a long-term
average of 15."

That's a huge difference, much greater than what you read
about in the newspapers. The commonly cited figures -- a
current market multiple of 17, vs. a historical average of
15.2 -- are based on the previous 12 months' earnings. But,
as Shiller points out, that's foolish: "Twelve months is
kind of short, only a fraction of one business cycle."

So he uses a ten-year earnings average, an approach
advocated by Graham and Dodd in Security Analysis, the value
investor's bible. And while prices are clearly above the
long-term trend any way you cut it, by that measure they are
still mountainously beyond normal.
---
http://money.cnn.com/2005/12/16/mark..._fortune_12260
5/

Maybe the Dow will scoot on up to 15,000 by 2010. But then I
expect it to come crashing down again. I'm comfortable
basing my financial planning choices today on the assumption
that the market currently is overvalued.

<BreadWithSpam[at]fractious.net> wrote:

- quote -

Um. Yes it would. That still seems high to me.

When I was in an 1800 sf house with crappy insulation and high ceilings
that I kept at 68 (and that meant that upstairs was 74 because we had no
zoning), I paid something like $600 for the whole year for oil. At
todays rates, that would be around $12-1300, which works out to about
$300 for the worst months. In my current house, we keep it at 58 and
it's both smaller and pretty well insulated. I think our last oil
delivery was in early december, and we still have 1/2 a tank.

$632 in a month is a lot to spend on utilities, even in winter in NE.

In the context of people just above the poverty line, well, *duh* they
don't live in even average houses, they live in studio and 1-2BR apts,
and they keep the temperature low in the winter, etc.


Michael

iarwain_8[at]hotmail.com wrote:
- quote -

I don't want to turn this into a discussion better suited to
misc.politics but I don't think that's likely at all. I think a
governing principle in long-term financial planning in the US is that
because this is a capitalist economy, you want to be one of the people
with the capital, meaning a net-investor, not a net-debtor. The latter
in effect "loses" to the former. Not "in the past"...just, inherently,
as part of a capitalist economy. This is just one of those
foundation-level kinds of principles. It doesn't apply in some countries
but it most certainly applies here. If you don't believe it I think it
would dramatically change your assumptions about what to do with your money!

Just as an example - if we were in a country with a strong
centrally-controlled economy, it wouldn't be clear that building a
valuable enterprise (or owning a piece of one, by owning stock) would be
long-term beneficial, because it could be taken away, or so heavily
taxed as to do away with the advantages of ownership. Ditto if we had
extremely strong social services. Not saving a dime and not investing in
anything could be a valid financial plan - why bother?

You don't need to scratch the tax code too deeply to see that isn't the
case in the US, not by a long shot. The tax code heavily favors
ownership-income over labor-income, and I suspect, will continue to do
so because of the basic connections between money and the ability to get
laws enacted in a certain way.

But this thread developed around the high cost of energy...let's put
that in perspective, it's relevant I think...you might have heard that
the S&P 500 is trading at about 16X earnings, which is a decent (only
slightly higher than average) valuation. If you look up the earnings
statistics on the S&P 500 you'll see that over 50% of current earnings
come from the energy sector, a figure expected to last through at least
the next three quarters. I don't think it's exaggerating to say that
energy costs (and resulting profits) are very much helping to keep the
S&P 500 index afloat.

So who wins and loses this energy thing? I say, even a modest investor
wins, by pocketing higher profits (or owning an S&P 500 fund whose value
is being in part propped up by those profits). Let's say energy bills of
all types are $4,000 for a year - a big sum for most (> 50%) of
households. How much of an S&P 500 index fund does one need to own to
get a greater benefit from those high costs than pain in the wallet? And
remember the proposed "tax on extranormal profits" after ExxonMobil
announced its big quarter - how far did that go?

I don't want to sound cynical (!) and on the bright side, there is 100%
access to the system of ownership in the US, impaired mostly by
education and choices. I suspect a large number of MIFP readers are, and
will remain, the net-winners irrespective of what transpires. But I
don't think there's much chance of "the government" changing that, using
a "follow the money" rationale, unless we have a Che kind of populist
revolution. Possible I guess, but likely?

-Tad

<<stricter penalties on cashing in one's 401(k)>
That would most likely *reduce* participation, not increase it.

John Cowart

<BreadWithSpam[at]fractious.net> wrote
- quote -

The OP said he lived in a "fairly cold climate" and had a
natural gas January heating bill over $400 last year.

Looks like I should clarify a few things:

- quote -

and his utilities were $632 a month.

Actually, my utilities are not $632 a month. They are $632 in JANUARY.
They drop to considerably less than that for most of the year.
I also never said anything about anyone in my situation getting about
$750 in Social Security. The $776 figure I used were the figures for
the Federal Poverty Level.

- quote -


I should also point out I was not asking for help, nor even complianing
about my high heat bill. I started the thread to ask about how people
who did not adequately save or invest for retirement were able to live
on their fixed incomes. Since I've been researching retirement issues
lately, I thought it was amazing that more elderly people were not
living in poverty, given the attitude most people in the US have toward
saving these days. I was never talking about my own situation, I
intend to be ready when I retire, God willing.

For what it's worth, I agree with John that $500 is too much to pay for
heat. Still, it's only a few months out of the year, so it's mostly
been just a nuisance for me. I have no doubt this is an area I will be
looking at the next time I get into a home improvement mood. For now,
I have other things I want to do with the money. Maybe that is an
error in my judgement.

One reason I don't want to move out of the house is it's an ideal
location for me, very close to work. Some people I work with drive an
hour to get there every day. Is it an error in judgement for them not
to live closer so they don't burn up all that gas? Maybe.
I also know people who pay over $1000 more in property taxes than I do.
Is that an error in their judgement? I don't know, but people make
different choices about different things.

I will say this: I would wager most people living in Minnesota pay
more than $86 for their heat bill in January. It's also not been made
clear whether that heat bill is averaged out over the year or just
jumps up to $86 in January, which is a big difference. In either case,
it sounds like John has low utility bills so that's a good thing for
him.

There are a LOT of different variables which determine how much people
pay for their heat, however. I know a lot of people who turn their
heat off during the night and/or when they go to work. I know people
who only heat one room in their house. I know people who keep their
thermostats on 55 degrees. People do a lot of different things to keep
their heat bills down.

One thing I DON'T want to do is end up spending a lot of money
replacing my furnace or putting in more insulation only to have it make
no real difference in my heat bill like some other people I mentioned
in an earlier post. And with the changing energy landscape in this
country, I'm not sure at this point what kind of system I would go with
even if I did change it. That's a subject for more research, I guess.

By the way, I'm the OP and I live in the Midwest, not the NE. The
other fellow with the high heat bills is from the NE

- quote -

I am concerned about this as well. Sadly, I think what you're
suggesting is all too likely. For the record, I guess I would prefer
they reduce my SS benefits than tax the heck out of my other income.
But from what I've read, we won't be getting a good return on the taxes
we've paid into FICA even if they don't reduce our benefits.

"John A. Weeks III" <john[at]johnweeks.com> wrote
- quote -

Come on. Are you a mathematician or what? We don't know the
size of the house. We don't know how many people are being
heated by its furnace system. We don't know the cost of gas
where the OP lives.

You are attempting scientific, deductive analysis when we
haven't scientific data, and that is an error in judgment.

This is my last post on this topic, moderators.