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Your IRA is on Cruise Control; And Why That’s Now Probably a Mistake

There is a better alternative to stocks and bonds.

Warren Buffett has said the key to investment success is to buy assets at the right time/price. So it is worrisome to think about the millions of people with 401Ks that continue to methodically pour billions of dollars into the stock market and bonds at this time. What’s troubling is that the market is priced near all time highs — and showing signs that the 9-year bull run is nearing an end. At the same time, while interest have risen somewhat bonds are still yielding near record lows.

I’m not suggesting that employees should not participate in their company’s 401K program. This is an easy way to build retirement savings and if your company provides any matching contributions it would be foolish not to take full advantage of this. But what is worth examining is the prudence of contributing anything beyond the level of company matching. For every dollar above the company match the question becomes “what is the best option for any new investment I am making today?”

When it comes to stocks, we’ve all been told not to try to time the market. What is less talked about is that there are alternatives to stocks in the first place. If you were to actively decide where to invest your money right now would you be buying stocks with the S&P 500 near it’s all time high and showing strong volatility? Would you be buying bonds and locking in yields that are less than the rate of inflation? I don’t think you would.

I’m sure Buffett would not like either of these options. But there is an interesting alternative.

Diversify. Diversify. Diversify. We’ve all heard this many times. Yet most investors typically hold just two asset classes: stocks for growth and bonds for safety. When the stock market climbs upward for 9 years, this strategy works just fine. But what happens when it doesn’t? Right now might be the perfect time to consider a third asset class that most investors miss; and that’s commercial multifamily real estate. This often overlooked option can provide investors greater diversification and strong returns even in the face of a potential drop in stock prices.

“Stocks will bring you highs, but periodically will seriously let you down. Treasury bonds will keep you safe, but they won’t make you rich. Housing? That’s the best of both worlds.” — Quartz’ Dan Kopf on the findings of a new study

Many high-net worth investors and financial experts consider real estate to be the ideal investment — specifically commercial multifamily real estate. Unlike your home, commercial real estate is a true investment owned for the primary purpose of appreciation and financial return. What makes real estate ideal?

Commercial real estate offers investors a number of attractive benefits compared to stocks and bonds. These include higher annual income, favorable tax treatment, and more attractive risk-adjust returns. Even further, commercial real estate returns have a low correlation to stocks and bonds, so it’s an excellent way to diversify. Real estate can even serve as a hedge against inflation should interest rates and prices continue to rise.

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Commercial real estate historically has generated attractive returns and has exhibited less volatility than public equities.

Multifamily, which is another way of saying large apartment complexes, is considered to be the safest, most stable and predictable class of commercial real estate. A recent book on the subject of investing referred to it as The Perfect Investment[1]. What’s more, this isn’t a short-term opportunity. In fact, according to a new study housing has been the world’s best investment for the last 150 years.

From many investors perspective– including myself — the answer is clear: multifamily real estate. Conveniently for investors, these assets can be invested in passively through firms that specialize in acquiring and managing apartment complexes. Specifically, I like the investment model and track record of OpenPath Investments. Full disclosure: I have been an OpenPath investor/partner since leaving Google in 2007.

OpenPath Investments is a social impact real estate company with a proven model and a 12-year track record delivering 20%+ IRR. If you’re interested in learning more this short video does an excellent job of explaining what we’re all about.

Many people don’t realize that they can invest in real estate and other qualifying assets via their retirement account. Firms like Equity Trust, Pensco Trust and many others can help you set up a self-direct IRA.

Given the historic high price of stocks and low yield of bonds at this time, it is a good time to consider commercial real estate as an alternative. If you have questions or would like to to discuss any of this, please feel free to contact me directly at david at

A couple other posts that I think you will like:

My Next Google: A perspective from employee 75

Why OpenPath is Bullish on Apartment Complexes

OpenPath investment opportunities are for accredited investors. I am not a CPA or professional financial advisor. All opinions are my own. Feel free to reach out: David at OpenPathInvestments dot com.

Investor, Partner, Advisor. First Google Advertising Exec (2000–07), ex-Chicagoan. Now at OpenPath Investments & FullCycle Climate Partners

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