I decided to repeat some of an article I wrote for the March 2012 newsletter because it makes a very important point.  The entire previous article can be found on our website in the newsletter archives, March 2012 issue.

Imagine you have $100k to invest.  You have two options.  One that provides the yearly returns as shown in the column labeled ROI-A and one that provides the returns as shown in column labeled ROI-B.  Which is the better investment?

The next chart tells the story.  The returns are almost equal.  Now, the important question to ask yourself is which investment do you think was more risky?

People generally think of the stock market as the best place to invest because it offers greater returns.  However, a more secure investment with a steady rate of return might be a better option because it only took one down year (year 4) to equalize the total returns.  Imagine what two down years would do.  And this is true even with those great double digit returns compared to the steady single digit returns.

People also tend to remember those dazzling up years with the double digit returns more than they remember the down years even when some of those down years had double digit losses.

The table below shows our hypothetical $100k investment put into the stock markets S&P 500 versus an investment with a nice steady return.  The stock market ROI is the Compound Annual Growth Rate (CAGR) or Annualized Return of the stock market's S&P 500 from 1999 through 2011. This data was taken from the Money Chimp website. 

  

Using the actual S&P CAGR for the last 12 years the difference between these investing options is more dramatic.  This is true even though I lowered the steady interest rate to just 6% even with the S&P posting several years with significant double digit returns.    

I personally feel that our current stock market may go higher, however, I am not convinced the underlying values that typically justify such a move are present so I will continue to invest in hard assets.  

If you've been paying attention to your bank statement you won't be surprised to know that banks are not generally paying 6% right now, not even on Certificates of Deposit (CDs).  So you might be asking, how can I take advantage of earnings like this?  Well that is a great question, so I will offer four suggestions, all of which we are doing right now or have done in the past.

If you like this idea, there are some great people we can put you in touch with. We don't get paid to do so. We just believe they will treat you right and provide you the very best suggestions they can to help you with your financial future.

REI loans for property are generally secured by the property itself.  Therefore, if the property is purchased correctly and the project is managed well, the loan has sufficient collateral to guarantee payment of the loan. 

Did you know that more than 30% of all homes bought in the U.S. during the last two years were bought with CASH?  A lot of those purchases were probably REIs.  Some words of caution here:

1. Know your investor - consider their track record (Have they done this before? Did any projects fail and if so how did the investor get paid back?)
2. Understand what the investor is investing in and how they will make money to pay you back. (We have successfully matched private money investors with REIs in the past.  One of our key responsibilities when doing this is to help protect the private money investor by using our knowledge to evaluate the project for soundness.)
3. Make sure you understand the contract you are signing.  Having your attorney review it may make good sense.  We personally like our contracts to be in plain english and easy to understand so everyone knows what is expected.

REIs also work with Equity Private Money Investors (EPMI).  An EPMI provides finding for a project that has a projected rate of return which is usually higher than a Private Money Lender will receive however this rate of return is not promised, just projected.  In fact, an EPMI can share in losses or be requested to bring more money to the project if required.  It is, of course, in the REIs best interest to ensure the EPMI receives the projected rate of return or better because reputation in this business is very very important.  Since EPMI investing doesn't have a promised rate of return I will not discuss it further in this article.

Industry News  

(by Kevin)

In last month's newsletter, our website has links to the archives, we provided a chart that Charles Brady, from Fox Business, graphed showing the Dow Jones Industrial Average and the Adjusted Monetary Base.  The correlation between these two items "clearly shows the Federal Reserve's monetary easing policies are not going into the U.S. economy, but instead into the stock market."

To add another bit of news, Porter Stansberry reported this month the following: "I recently read that New York Stock Exchange margin debt is at its pre-2007 highs. In other words, people are more leveraged today in order to buy stocks than before the financial crisis.  It's very, very foolish.  When people get greedy, you must get cautious.   And there is no doubt we have tipped way over from rational investing to greedy investing."

If these guys are right, I suggest using caution as you see the stock market hit new highs. It certainly may continue to go higher as more and more people and/or funds chase it, but I would be cautious. Ask yourself or your stock broker if the underlying fundamentals of the company the stock represents, i.e. increased profits, really justify the increase in stock prices. If they do, then you are in good shape. If not maybe you want to take your profits. As for us, we are sticking to assets backed by real estate.    

Warren Buffett:

During Berkshire Hathaway's recent annual meeting in Omaha, Nebraska, Mr. Buffett said he felt sorry for people holding on to fixed-dollar investments.  

He said holding cash and Treasurys has been "brutal."

We agree.  Our government is printing money on overdrive, which has got to eventually cause higher inflation. If your money is earning less than the rate of inflation then you are losing money.  You may not be losing dollars but you are losing purchasing power,your dollars buy less, so it is the same thing.

I know that in 2011 the inflation rate averaged more than 3% and in 2012 approximately 2% so out of curiosity I went to the web and looked for current inflation statistics.  To my surprise current inflation is between 1 and 2%, click here for more information.  

Housing News:

The latest S&P Case-Shiller home price index shows not only are housing prices still rising... but the increases are accelerating.

The 20-city index climbed 10.87% in March, compared with March last year, beating expectations of a 10.2% year-over-year increase.

It's also the fastest increase since April 2006.

Laughs and Interesting Stuff 

(Kevin and Mary Jane)  

Differences between Men and Women

As a father with 4 daughters I am all for equality between the sexes, but over the years I have learned there are some differences, other than plumbing, that should be noted.

MONEY

• A man will pay $2 for a $1 item he needs.
• A woman will pay $1 for a $2 item that she doesn't need, but it's on sale.

BATHROOMS

• A man has six items in his bathroom: toothbrush and toothpaste, shaving cream, razor, a bar of soap, and a towel.
• The average number of items in the typical woman's bathroom is 337.  A man would not be able to identify more than 20 of these items.

ARGUMENTS

• A woman has the last word in any argument.
• Anything a man says after that is the beginning of a new argument.

FUTURE

• A woman worries about the future until she gets a husband.
• A man never worries about the future until he gets a wife.

MARRIAGE

• A woman marries a man expecting he will change, but he doesn't.
• A man marries a woman expecting that she won't change, but she does.

DRESSING UP

• A woman will dress up to go shopping, water the plants, empty the trash, answer the phone, read a book, and get the mail.
• A man will dress up for weddings and funerals.

Doc I Got Shingles

Joe walked into a doctor's office and the receptionist asked him what he had.  Joe said: "Shingles."  So she wrote down his name, address, medical insurance number and told him to have a seat. 

Fifteen minutes later a nurse's aide came out and asked Joe what he had... 
Joe said, "Shingles."  So she wrote down his height, weight, a complete medical history and told Joe to wait in the examining room.  

A half hour later a nurse came in and asked Joe what he had. Joe said, "Shingles." So the nurse gave Joe a blood test, a blood pressure test, an electrocardiogram, and told Joe to take off all his clothes and wait for the doctor.  

An hour later the doctor came in and found Joe sitting patiently in the nude and asked Joe what he had.  

Joe said, "Shingles." The doctor asked, "Where?"

Joe said, "Outside on the truck.  Where do you want me to unload 'em?"  

RED-HEADED Baby?

 
After their baby was born, the panicked father went to see the Obstetrician.

"Doctor," the man said, "I don't mind telling you, but I'm a little upset because my daughter has red hair.  She can't possibly be mine!"  

"Nonsense," the doctor said..."Even though you and your wife both have black hair,

one of your ancestors may have contributed red hair to the gene pool."

"It isn't possible," the man insisted. "Our families on both sides had jet-black hair  for generations."

"Well," said the doctor, "let me ask you this.  How often do you have sex?"

The man seemed a bit ashamed.. "I've been working veryhard for the past year. We only made love once or twice every few months."

"Well, there you have it!" The doctor said confidently.... "It's Rust."

Keep On Smiling!

(so people will wonder what your up to)