Expert: Paul Henneman - 3/1/2006

Question
Hi Paul. My friends keep telling me that real estate should be a better investment than stocks over the long-term because Warren Buffet and several prestigious business schools only project 5-7% returns for stocks long-term. Should I put more of my retiremnt money in my 401k plan's REIT fund managed by Fidelity or put more in stocks. What has done better historically? Donald Trump seems to think real estate is a better investment. Please help, I want to be diversified but I also want the highest investment return long term, I'm only 33 now.

Answer
Michael,
   Thank you for your question! Historically, stock portfolios have always done much better than real estate over the long term. Real estate is already leveling off in most markets. Inventory is up (more houses for sale), number of buyers is down.I agree that since you are young, you have to look long term. At no time in history has real estate performed better than average stock market performance. In addition, there are so many more costs associated with real estate investment. (However, your REIT interest is a good way to avoid the expenses of owning real estate).
    With all that said, I still think you should invest in the REIT. It is a great way to diversify your portfolio. You should be strongly weighted to stocks, but 10 or 15% of the overall value of the portfolio in realestate would help with diversity, as well as capture some gains during the up cycles that always come in real estate.
    It is wonderful that you are so concerned with your 401k.  The tax advantages are fantastic, plus the investment growth, means that if you contribute all you can for the next thirty years you will do very well. It takes patience and discipline, ignore downturns that always occur. In the long term you are building very good wealth.
    I hope this helps! Please do not hesitate to follow up with me if I can be of any further service,

Sincerely,
Paul Henneman
President
ValuEngine, Inc.
www.ValuEngine.com
www.VEInstitutional.com
www.VEReports.com