Today we are joined by Rob Bennett and Rob is a financial guru, an author, a blogger at A Rich Life and Passion Saving and a strong advocate of financial freedom. He’s been featured on ABC News and is frequently quoted by investment professionals.
One of the core principles Rob shares in his blog is that investors must abandon buy-and-hold stock investing if they want to reach financial freedom faster. Most of what Rob shares in his publications pertain to stock investing, and we are incredibly excited to get his take on real estate investing today.
RealtyMogul.com - Rob, for our readers who are not familiar with your investing strategies, can you share with us the core tenants of your thoughts around investing?
Rob Bennett - “The title I use is “valuation-informed indexing” and there is only one thing that is different from conventional advice. Rather than staying at the same asset allocation at all times (ex: 70% stocks and 30% bonds), with valuation informed indexing, you change allocations. You allocate more to stocks when prices are low and allocate less when valuations are high. Research shows this would give you dramatically higher returns and dramatically reduced risk.”
RM - Rob, how do we apply this theory of valuation informed investing to real estate?
RB - “You could try to apply it directly but it would be problematic. Directly, real estate is subject to the same principles, real estate, like stocks can be too expensive. An argument can be made you should invest in real estate to a greater extent when it is better priced. The difficulty is that we do not have the data and research in real estate the way we do in the stock world.
The way to think about real estate is that real estate is obviously better priced today than before the crash but when stocks are overpriced; real estate tends to be overpriced. Based on this theory, real estate could be priced lower still. You have to understand the risk.”
RM - How do you recommend investors look at their asset allocation?
RB - “Going along with conventional advice, I believe people should only invest in things they understand well. Real estate can be very appealing, but I recommend people chose the asset class they are going to focus on and study that to death as opposed to spreading yourself out thin and having a little bit of everything. I have not studied real estate, so I don’t invest in it as a result. If you study it, real estate can make an excellent asset class.”
RM - What do you think will happen to interest rates?
RB - “I do not focus on interest rates very much. I am very much a long term investor. Interest rates will go up and go down over the long term.”
RM - Why do you focus on the long term?
RB - “Let’s take the best investment guru in the world, Warren Buffet. Warren Buffet’s strategies often do poorly in the short term. What people do is pick a strategy and it’s a great strategy and they follow it for three years and then stop. You need to give the strategy enough time to perform. Do the thinking up front, be confident of the strategy and stick with it. In investing, a lot of things only pay off in the long term. If you go with a strong strategy, it will pay off. You need enough information to be confident. Long term gives you emotional stability. But you must understand the rationale and understand the investment. There will be time periods when it doesn't perform well, but you don’t want to give up. Long term investing is everything. Emotional balance is everything.
Real estate is a great investment if you approach it from a long term perspective, and so are stocks. But if you have a short term focus, it is bad and there is no appeal to me. You have to stick with a strategy long enough for it to pay off.”
RM - And now for the shameless plug….what do you think of Realty Mogul?
RB - “Your project is exciting in that I think if people dig in and learn for themselves, you can learn so much that way. It’s amazing. I am a big believer in being actively involved, instead of just listening to investors. Digging in there and finding the facts gives you the confidence. That is how I put together our Retire Early plan. Everybody should be putting together their own financial plan.”