Which is More Secure: Rental Properties or Stock Investments? (A Case Study)

      Another Great Day in Retirement

      In a recent conversation about inflation, a thoughtful reader named Aaron made a striking comment that grabbed my attention:

      "If you're concerned about inflation, smash your TV and take a walk in the woods. Trees grow bigger every year unless they're cut down."

      This remark was part of a larger discussion that Aaron shared, and I appreciated his contributions. However, I was soon faced with a request for a case study that resonated with me deeply, prompting me to address it right away.

      At the heart of his query lies the essence of what "retirement" truly means.

      In my view, retirement doesn't necessarily mean ceasing work. It means achieving a level of financial freedom such that your work is a matter of choice, rather than a necessity for income.

      Ultimately, the purpose of work is to create something meaningful to you. So why would you ever want to abandon that?

      Aaron Writes

      Dear MMM,

      I am a 47-year-old contractor running a small remodeling business with five employees. My children have all grown up, and we live below our means in a lovely house I built 16 years ago on 25 acres that we plan to stay at forever—we love it here.

      Additionally, we own a beautiful log cabin/timber frame home from the 1860s that we spent three years and a lot of money renovating and now rent out on Airbnb.

      We're in the process of selling two other properties: one is a former home that my youngest daughter is buying, and the other is a house that my crew and I are nearly finished fixing up.

      Given my nature, I will likely purchase another fixer-upper or some land with the proceeds, provided the price and condition are right. However, I have also always been intrigued by the stock market.

      Currently, we don't own stocks or index funds, and we have no debt. I've recently reduced my work week to four days, and I'm quite content with that for now.

      After some calculations, I've realized that if we sold the Airbnb and the two other houses, we would have enough cash for me to mostly retire—working only if I felt like it.

      So, with the stock market down, would it be wise to sell the real estate and invest that money into VTI?

      As a hands-on person, the idea of converting three tangible houses into mere numbers on a computer screen feels odd to me, even if it makes financial sense.

      What other options, besides stocks or rental real estate, could I consider for securing a 4% withdrawal rate in retirement?

      —-

      It's clear why I resonate with Aaron's question. As a fellow 47-year-old carpenter who cherishes manual labor, peaceful woods, and sharing my thoughts on the complaints of financial media, I understand his perspective well.

      Conversely, I'm also comfortable with stock market investments as a means of long-term wealth and security. A significant portion of my life savings is invested in index funds, with the rest in my home, local real estate, and small business ventures with friends.

      Thus, the primary distinction between Aaron and me is that I perceive houses and stocks as two forms of the same asset. Both are real, tangible, productive assets rather than mere gambling instruments or digital figures. Understanding this relationship can significantly improve one's investment acumen. On the other hand, individuals who only understand one side or the other may miss the true nature of what investing entails.

      Real estate enthusiasts often highlight the tangible aspect of their investments. Their properties genuinely exist, providing housing to tenants, fulfilling a vital human need. By meeting this need, investors earn rent, which represents a legitimate and sustainable income source.

      Moreover, property ownership is backed and safeguarded by our legal and financial systems, fostering trust, which is fundamental to a society's wealth.

      However, some real estate proponents go too far, claiming that real estate is the only genuine investment and becoming oblivious to the merits of stock ownership in different businesses. This tunnel vision can create "crusty multimillionaire landlord syndrome," where a person owns numerous rental units yet never truly experiences retirement, no matter the size of their empire. For most individuals, real estate ownership operates as an active business, not a genuinely passive investment.

      On the other hand, stock market advocates may fall into a different trap: focusing on stock prices rather than genuine ownership in businesses. If someone discusses terms like "200-day moving average" or "support level," they're likely experiencing this issue.

      This phenomenon is akin to speculative behavior surrounding cryptocurrencies, meme stocks, and other irregular trends, where individuals seek profit without considering the fundamental value derived from earnings.

      If there are no earnings, there is no value. Betting otherwise is like attempting to get fit while wearing a fake superhero costume instead of doing actual workouts.

      Just as significantly, owning stock represents a guaranteed share in a real business, safeguarded by our legal systems and financial institutions, similar to owning a home. While buying and selling stocks may be easy with a smartphone, the essence of

Which is More Secure: Rental Properties or Stock Investments? (A Case Study)

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Which is More Secure: Rental Properties or Stock Investments? (A Case Study)