Investing for Smart Gardeners

I heard it said years ago that you should treat investments like you would tend to a rose garden; trim, fertilize and prune to gain the maximum beauty. I also remember the old investment strategy of cost averaging; owning a hand full of stocks, buying the stocks consistently at various times throughout the year at both high and low prices and holding the investment never selling, thus lowering the overall cost. In a volatile market where most investments are taking a pounding the question is, should we own stocks at this time?

The same can be said of the current real estate market. From 2007 to today real estate investment seems out of favor. It is over stocked with too many homes, values way too high given current affordability levels and too much additional inventory will be entering onto the market via bank owned foreclosures. Buying real estate at this time seems to be a fools game. But for those that are real estate investors these are very exciting times. We dream of times like these! Like good gardeners with years of experience we have seen down markets before(1973,1980,2000)and wish we would have bought up the market at 1/2 to 1/3 the price and watched ourselves make a killing a few years later.

Real estate as an investment delivers 5 financial benefits: Appreciation, Tax Advantages, Residual Income Cash Flow and Shelter. For the past 20 years or so real estate has delivered on all 5 benefits, but more so on the appreciation. In some of the best years (2004-2006) real estate delivered over 20% appreciation per year. That is unprecedented for a conservative investment! The same can be said with the stock market 1984-1987 and 1996-1999. These were the glory years where good luck rained down upon you like a ticker tape parade. It should also be said that the years following these huge upturns were very unpleasant for “greedy pigs” that stayed in the market hoping to continue their run on fortune. Like growing tomatoes in winter, the time is just not right.

Market volatility is part of the game. Prices rise and fall as investors jump from one pool of favor to the next. For now most investors are on the sidelines waiting to purchase at the bottom of the market. As for both stocks and real estate we are no where near the bottom. A good indicator will be when employment begins to rise without “artificial fertilizers” such as government subsidiaries or incentives. In the end, nature will take its course regardless how much we trim, fertilize and prune. Smart gardeners will buy seeds and plant regardless of the weather conditions. They will be the ones with the most fruit to sell when buyers come back to market.