How to deal with financial problems
Ten years ago Michael looked at both real estate and stocks. A stockbroker told him that real estate was too complex. Because stocks and stock mutual funds were simple and easy to understand, he would do better in the stock market. Ironically, in 10 years of study, Michael still does not grasp all the complexities of the stock market; yet with no study, he and Susan were able to purchase three homes. The value of his current home has far outperformed his stock investments.
Despite his own experience, Michael still believes that real estate is too complex and the stock market is relatively simple. In fact, more than 100 factors can influence the price of a stock, whereas less than six factors affect the price of real estate. At first, real estate investing appears complex. After a year or two, it becomes simple. Stocks and stock mutual funds, a first glance, seem simple. After a year or two, the complexities appear. After a decade, the complexities of stock and stock mutual fund investing can become overwhelming. Late-night online investors, including Michael, come to understand why veteran stock managers work 80-hour weeks.
So how do Michael and Susan move out from under their defended position in the stock market and into their comfort zone of real estate? Financially, this can easily be accomplished. In fact, they have so few gains
in their taxable portfolio, they will not pay any taxes to shift into real estate. They will get tax deductions from selling out. Considering the negative investment returns they have been getting in the stock market, it also would be reasonable to take a 10 percent penalty and liquidate their 401(k). But emotionally, Michael and Susan are attached to their dysfunctional relationship with the stock market.