Most of us are impatient when it comes to getting what we want, and this can include everything from our next meal to a significant return on our investments. But is it really realistic to get a big return on a stock market investment or a real estate property we recently purchased? What about all those stories of flipping properties overnight or doing some magical stock trading in order to make a quick buck?
We don’t deny that some have made money quickly on these kinds of investments, but we recommend looking at your investing as a long-term proposition. Let’s take a real estate property as an example. You could, in theory, find a property which is worth quite a bit because of its condition and neighborhood. However, perhaps the seller is desperate to sell because of a family emergency, or maybe the current price of the property is lower than expected because there are some cosmetic issues that you could easily fix.
This may become a profitable property for you, but there are many factors involved that you may not have considered. First of all, you will have to pay the actual cost of upgrading the property. Secondly, you have to factor in all of the closing costs involved including the upfront interest (known as points), the property inspections and appraisals, loan origination fees, and possibly other fees as well. When you factor all these properties, it becomes more difficult to make a quick profit. The real estate market could come crashing down unexpectedly just as it did in the late 2000s.
Of course, if you misjudged the value of the property or the cost of renovations, you might be stuck with a much more expensive project than you had anticipated. You could be scrambling just to break even, or you could make only a small profit after a significant amount of effort.
This is an example that demonstrates why we believe real estate should be viewed as a long-term investment plan. The same could be said about the stock market, however. Many people panic when there is a recession or other crisis that sends stock market values down. There is certainly a time to sell a bad stock, but far too many people panic and sell everything in order to make sure they don’t lose more than they already have. If they were to stay in the game for the long-term, and if they had a well diversified portfolio that would guard against individual losers, they would have a good chance of surviving through the bear markets and eventually making a good profit.
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