Q: I was told by a financial advisor that if I sold all my real estate, and put the money into a mutual fund, I could earn 10 percent or more a year.
I’m getting a return of 48 percent plus on my properties but the idea of $200,000 or more a year in cash (the 10 percent on my $2 million in real estate) sounds very appealing.
I make somewhere over $100,000 a year with my job, and having an extra $200,000 in my pocket sounds pretty good.
What are your thoughts on this? Also what about the yearly taxes and fee’s on the money from the mutual fund?
A: I know about a million people who’d like to be in your shoes.
What I don’t quite get is why, if you’re earning a 48 percent return on your money each year, you would you trade that for mutual funds?
Over the past 70 years, the stock market has returned an average of 10 percent per year. However, the stock market has barely budged in the past couple of years, and has still not fully recovered from the dramatic slide in 2000. That’s the nature of buying stocks. They go up and they go down. It can be quite a roller coaster ride. Are you ready for that?
Before you take a 180 degree turn in your investment portfolio, I think it’s important to define what your financial goals are.
If you’ve reached a point where you no longer want to be a landlord, or you believe your real estate returns going forward will be more limited, then you should consider selling some or all of your portfolio.
But don’t do it because someone is telling you that you can earn 10 percent or more in the stock market each year. That may not happen. Also, like any investment, that return isn’t guaranteed. And, past performance is no indicator of your future stock market returns.
Mutual funds do carry some fees, but it is possible to invest in “no-load” funds, or funds that do not carry a sales charge. There will be a management fee, marketing fees, and other expenses. Index funds are the least expensive funds to own. Fidelity currently has index funds that cost just one-tenth of one percent to own. Before buying mutual funds, you’d want to check out the costs (and compare it to other funds) at a website like Morningstar.com).
After making a list of your short-term and long-term financial goals, you should sit down with a fee-only financial advisor or a certified financial planner (CFP) who will charge you on an hourly basis to go over your portfolio and discuss how you can achieve your financial goals. The National Association of Personal Financial Advisors is a trade association for fee-only financial advisors, at FeeOnly.org.
A financial advisor can help you sort through your entire portfolio and make recommendations on how to reduce risk, expand your returns, and achieve your financial goals for 2006.