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Financial Jiu Jitsu will teach you how to gain leverage in the real world, step by step, until you are confident you no longer need more.

Passive net worth increase of property

Passive net worth increase of property

Let's call on an example of 2 individuals with stable jobs. Both people have saved 40,000$ and have no debt. Individual #1 invests his money in the stock market. Individual #2 invests in a personal residence of value 200,000$. How do the assets of these two guys grow over time? The equations will tell you pretty quick:

Real estate value = 200,000$x(1.11^(number of years))

Stock market value = 40,000$x(1.12^(number of years))

Right away you are noticing that there were some pretty extensive assumptions made here, but that should not dissuade you from noticing the inherent heft of the former number. 

Assumptions:

  1. Real estate increase in value averages ~11% annual increase not adjusted for inflation
  2. Stock market value averages ~12% annual increase not adjusted for inflation
  3. The real estate guy has a house payment now, this is equivalent to the stock market guy having to rent. 
  4. No taxes are being taken into account. Otherwise I feel like real estate would very quickly overcome the stock market and that would make for a boring article. 
  5. This is not a rental property, this is a personal residence. 
  6. I am ignoring the loan almost completely except for the principal due. 

Generally though for money-in-the-bank purposes you might hope to have these very reasonable values looking back at you for each investment after 15 years:

Return on stocks vs return on real estate not adjusted for inflation

Return on stocks vs return on real estate not adjusted for inflation

Some will say - DDave that's not fair. You didn't even take out the remaining mortgage balance from the value of the real estate. Ok let's do that. Let's say you take the entire loan balance of 160,000$ out of the final value, you come up with 702,000$ easily.  

Bottom line is this and it is painfully obvious: huge balances in a stock portfolio are for the rich who are already made men.

If you don't have any real estate then you better get some. 

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Real estate or alternative investing?

Real estate or alternative investing?

Car induced net worth fluctuations

Car induced net worth fluctuations