- The American Dream: As Real as Ever
- The Motivating Force of a Demand-Led Expansion
- Buy and Hold, but for How Long?
- Transaction Costs (Greatly) Influence Holding Periods
- Riding Out the Dips: A California Story
- The Returns: Capital Gains
- The Returns: Imputed Income
- Calculating Your Total Return
- Onward and Upward to the Stock Market
- Endnotes
This chapter is from the book
This chapter is from the book
This chapter is from the book
Onward and Upward to the Stock Market
You thought this was a book about investing in the stock market, and now you're being led to believe that owning a home might be the best place for your money. Well, there are important twists to this story.
In touring the ins and outs of homeownership, you now should understand how to measure any investment—how to compute your total return while accounting for the transaction-cost effect. Taken together, this should always be your bottom line—it will allow you to assess your investment performance as well as judge how you're doing relative to other investors. You also should have a grasp of the fundamental investing concept known as buy-and-hold, through thick and thin. When you think of it, what do you get when you average out the good times (the thick) and the bad (the thin)? Well, you get average performance over time. Add in the fact that home prices appreciate significantly over time, and you have a winning, though average, formula.
So armed, we can now make the case for taking the next step to owning and managing your very own portfolio of stock and bond investments. If you can understand the fundamentals of owning a home as outlined in this chapter, you can grasp the basics of investing in the stock market. But in the next two chapters, we use the same fundamentals to show how the returns generated by stock market investing can soundly beat the returns delivered by homeownership. In doing so, we inch up from average to above-average investing. Perhaps, not surprisingly, transaction costs will again hold center stage: Because these are so much lower relative to stocks than to residential real estate, unlike Jennifer and Carlos, you won't have to hold your investments for five or so years to generate a total return to your liking.