On this episode of "On the Money" Ruedi Wealth advisors and Dr. Fred Giertz discuss investing in real estate and preparing for your first meeting with a financial planner.
Economy and Low Risk of Recession (1:40)
Caller Question – Investing in Real Estate (9:20)
“If you look around, it always seems like 2 or 3 of the wealthiest families in town are the people who were big in real estate. I think people who own real estate over decades share some of the behavioral characteristics with successful stock investors.”
- Paul A. Ruedi
“The only ‘alternative’ investment I recommend is real estate - I think most people should have real estate in their portfolio. It is a good diversifier – it doesn’t behave exactly like stocks and bonds. That doesn’t mean they are always moving in opposite directions – sometimes real estate is down and the stock market is down (probably by different amounts).
So there’s a good diversification benefit to having it in your portfolio. The question is, how are you going to do that? One is to invest directly in real estate – you go out and buy an investment property; the other is to buy shares in a Real estate investment trust – a basket of publicly traded real estate companies that are wrapped into an index fund or mutual fund – so that you can get diversified exposure to real estate without having to do your own investing. The right option is going to depend on the person, but I think you should include it in your portfolio in one form or another.”
- David Ruedi, CFP®, RICP®
"You invest in a mutual fund to own multiple stocks and spread your money around – that is the same reason REITs exist. You may not want to invest all your money in one property in Champaign, you want to limit your risk as much as possible; if it is something you are not an expert in, a REIT is a great option to get some additional diversification in your portfolio."
- Ryan Repko
“There are some benefits to investing in real estate directly. 1031 exchanges allow you to swap one property for another to avoid paying capital gains at that point, essentially deferring it to the future. Being able to claim depreciation on the property allows you to offset some of your income for tax purposes. Another one, and this is kind of a double-edged sword, is the ability to use leverage. The question is, are those worth the extra headaches of actively investing in real estate?”
- David Ruedi, CFP®, RICP®
Your First Meeting With A Financial Planner (31:37)
“As retirement planners, we offer free consultations, but there are a lot of reasons people find it really hard to make that meeting with a financial advisor. Maybe I’m embarrassed about past mistakes that I’ve made. Maybe I don’t know what my goals are.”
- Paul A. Ruedi
“Don’t be afraid to talk about your personal life. Where’d you come from? Where’d you meet your spouse? Where’d you grow up? What was your family like in terms of wealth? How do you feel about debt?
- Paul A. Ruedi
“People walk into a financial advisor’s office expecting to talk about numbers and dollars and returns, but they end up talking about more personal issues. That often surprises people.”
- Ryan Repko
“There are practical things a planner will need to know about you. Do you have financially dependent children? That has big implications. Your health - that has implications as far as life expectancy. A lot of it gets down to the assumptions you use in your financial plan; a lot of that stuff is impacted by your family life, and so will your goals.”
- David Ruedi, CFP®, RICP®
“What we are hoping for is that people have specific goals that they have thought about already. Not just goals like ‘I want to retire’ or ‘have a lot of money,’ but goals like ‘I want to retire in 5 years and spend 90% of the money I’m spending now.’”
- Ryan Repko
“Most people who walk into our office wondering if retirement is even possible, usually by the end of our first meeting have a really good concept that it is not only possible, but they are going to retire into a standard of living much higher than they had experienced before retirement.”
- Paul A. Ruedi
“The key message here is that you shouldn’t go into an advisors office and say ‘here is my money, how are you going to invest it?’ The answer is going to be that I have no idea because I don’t know what we’re investing it for. What are we trying to accomplish? If you need the money in 2 years that is one thing, if you plan to use if for retirement in 20 years that’s another thing altogether.”
- David Ruedi, CFP®, RICP®
“A lot of people still believe the role of a financial advisor is to forecast the economy, or pick winning stocks, or choose a mutual fund that does those things for them. At the end of the day, there’s not a lot of evidence that anyone can consistently do that. A lot of advisors even think that. If the first thing an advisor starts talking about is his or her investment philosophy and how it has performed in the past – that is something to me that would be a red flag. Or if they try to sell you on the merits of a certain investment product, that’s a red flag as well.”
- David Ruedi, CFP®, RICP®
“People that have a financial advisor or financial planner and a financial plan are happier, more at peace, and worry less. Regardless of who that advisor is.”
- Paul A. Ruedi