Why My 2019 Diversification Plans Include Buying More Stocks

As a New Year’s exercise last year, I ran the numbers for a rough comparison.

I was wondering how the US$50,000 I had invested in real estate 20 years prior and rolled over in series into new properties over the course of ensuing two decades had fared…

Compared with the return I would have earned over that period had I put that US$50,000 into an S&P index fund.

My finding?

The annualized compounded return (IRR) from my series of real estate investments over two-and-a-half decades was a bit greater than what I would have earned from the index fund.

All these years I’ve wondered if my personal avoidance of stocks as an investment class has helped or hindered my ability to grow wealth. I wanted to try to find an answer to that question.

Turns out my strategy has paid off… though one reader didn’t see it that way.

When I published my conclusions, one reader wrote to tell me that his stock portfolio was up something like 81% in 2017 alone—well ahead of any of the indices. This edge over standard returns, he told me, was the result of research and personal savvy. He’d been able to beat the averages.

Fair enough. Maybe the guy should launch a hedge fund.

This New Year the stock landscape is a different scene. The market’s fall over the final quarter of 2018 wiped out all the year’s gains and then some. Friends with big portfolios are understandably unhappy about their paper losses.

Many are looking to sell some percentage of their stock holdings and to diversify into real estate.

My current investment portfolio is something like 97% real estate, 1% cash, 1% stocks, and 1% gold. One of my 2019 resolutions is to reduce the real estate percentage and increase the stock percentage.

You could call me the ultimate contrarian.

In October I began a program of stock purchases. Timing couldn’t have been worse. Every stock I’ve invested in is down…

With one exception—a recommendation from a friend that earned me a gain of 49% in two months.

The trouble for me is that, unlike the reader who wrote in last year to tell me it’s possible to beat the S&P averages with focused research, I don’t have much time to devote to this.

I know enough to know what I don’t know, to recognize my limitations…

And to establish connections with people whose experience and expertise can fill in my gaps.

One such person is Leon Wilfan. He’s the one who gave me the stock tip that earned me 49% in a just a couple months. That tip came before Leon started writing for sister e-letter Cashflow For Retirement and his new advisory service True Retirement Wealth.

Now that Leon is writing for these publications, I can’t get direct recommendations anymore. I’ll have to wait to read about Leon’s picks just like all the rest of his subscribers.

I’m on board, though. I like Leon’s approach and expect to pick up more of his recommendations as he publishes them.

A friend who runs a stock brokerage firm in the Caymans has given me a hard time regarding the imbalance he perceives in my holdings for years. He understands that my property portfolio is well diversified and generating good cash flow… but he argues that’s not true diversification. I’m way too heavy into real estate from his perspective (maybe from anyone’s perspective).

Thus, again, my 2019 objective to build a more diversified total portfolio, with more weight given to stocks.

Real estate will always remain my focus and my priority. I’ve got decades of experience and know-how to do with identifying and analyzing markets and specific purchase opportunities.

Plus, I’ve always been more comfortable with real estate than with stocks. You don’t have to watch and worry about values day to day.

Also unlike stocks, you control the asset—not some over-compensated CEO. And the yield can be excellent—well into the double digits… as much as 25% or 35% per year and more.

On the other hand, real estate is illiquid.

Now that I’ve turned the corner on a half-century, I’m thinking more about retirement… a time when liquidity that isn’t tied to the sale of a piece of property can become important.

For this New Year, I’ve identified my real estate markets of focus and have made a plan for both expanding and consolidating my 20-years-in-the-making property portfolio. That’s what I know how to do.

But I’m also committed to beginning to put a greater percentage of my overall portfolio into the markets.

That’s where Leon comes in.

Lief Simon