The one with more general investing advice
Investing in real estate is only one option in chasing that dream of retiring early - and we think it makes sense to know about some others as well
If you need any more proof that it’s hard to invest your money in a way that actually yields some returns but doesn’t cost you something that’s just as valuable as your hard earned cash (and by that I obviously mean sleep!) … My tax advisor kinda throwing his hands in the air is that proof. Well, at least that’s what it sounded like, we were on the phone so I couldn’t see the actual gesture. But it sure felt like he did that exasperated shrugging emoji ¯\_(ツ)_/¯.
“In the past I would have always advised my clients to invest in real estate”, he said. “These days, though,the return just isn’t there any more.” Champagne problems, certainly, but a problem nonetheless I guess. If the professional - trained and paid to help his clientele put their money somewhere lucrative but not too risky - if he doesn’t know what to tell you anymore … What are the uninitiated going to do? Which prompted me to inspect investment returns (in real estate and beyond) a little closer: what can and should you actually do with your money? How does all that play out for real estate investments? And since the theory of what constitutes a “good” return on investment is a bit murky and highly personal per usual, what did we learn from our own experience?
First the “how did we even get here?” bit - without boring you with too many of the details (as European Central Bank strategy isn’t necessarily the stuff that gets your heart rate going, hot yoga style). The very short version of this story is: “money is cheap” right now, mostly because central banks have flooded the market with cash after the 2008 financial crisis, hoping that it wouldn’t be tucked away in the (digital) piggy banks but instead entered and re-entered into the economic cycle. Low interest rates are a straightforward tool the Central Bank has to prop up the economy. They are so low in fact that your bank might charge you to hold money in your account. So low that some of the very much viable financial products of the past (like bonds for example) no longer make enough return to beat even inflation rates (and I am saving you all the cheap and cheesy “ghost of inflation” allegories - especially since I think of inflation more like a mean cookie monster type creature, slowly nibbling away at your crunchy coins). Read more about the background of all this here if you can’t sleep - we have other things to discuss. Like different ways to invest your money.
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Which, friends, brings us to asset classes. The completionist side of me REALLY wants to dive deep into this and give you All. The. Details. Plus extensive lists with pros and cons (I mean, who wouldn’t want to make a fortune collecting rarified dessert wines). But if I pause and take a deep breath I know you will actually be better off if we keep it moving. Maybe two general rules, though: With different asset classes available, you need to think about your investment goal and horizon. And you should diversify as much as possible, minimising risks across different types of assets. Wanna knock yourself out and read all about the stock market or how to invest in art? Sure. A few helpful links below (we’d still be here tomorrow if I was to summarise all of this. Letting others do the work for once).
Potentially big upside but pretty risky: Stocks
Safe but inflaaaaation: cash and cash equivalents
High volatility, a bit like stocks on steroids?: Commodities
The shrugging emoji (again): Cryptocurrencies
If you like steady payments but don’t mind the small return: Fixed income
Guess you would need to be an expert?!: Collectibles
I wish I could tell you that the extensive study of our investment choices led to the Heureka! moment of looking into real estate - or that I had already invested thousands of Euros in Bitcoin in 2013 (LOL). Alas, as stated a few times before, it’s not exactly like we sat around a large meeting table, James Bond style, petting an albino cat and plotting to invest our vast fortunes. Sure, it was pretty clear even to us that the “jeans account” of our childhood (no joke, in a stroke of marketing genius the account targeted at youth at my local bank came with a Britney flashback inducing denim clad checkbook) or any other of the “safe” investment vehicles weren't yielding any returns anymore (and this graphic really drives that home). But I personally didn’t have any money that would have justified time spent on investment deliberations. Buying a house or, to use the even more impressive sounding terminology of “investing in real estate” really wasn’t on my list of goals that year (completing a pull up, unassisted, and reading more books was). Believe it or not, we stumbled into real estate more by accident, were somewhat surprised to find out that it was attainable and bought a house, pretty much financed by a friendly neighbourhood bank. As they say: hindsight is 2020 (who the hell came up with an expression about the year COVID came to haunt the world?!).
The GREAT news: the returns have been super solid. So what happened? What were the contributing factors to making this house (or any house?) a good investment? So glad you asked. In our next edition, send to you automatically, conveniently, in just two weeks time … we’ll get to exactly those questions.
Next time, on Rente aus Stein: The pros and cons of real estate investing plus how we actually increased returns!
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We are not lawyers (sadly) and as such can’t give you legal and/or tax advise. We are simply telling our story in the hope that it’s inspiring to you.