Let’s explore the answer to the question, “Has the market been on a long-term decline?”
In today’s world, many people are concerned about not having enough money for retirement.
A survey revealed that the biggest fear in America is not terrorism but running out of money. After major market crashes in the past, that fear has only grown.
If we examine how the stock market has performed since 1971, we can see that things haven’t been going too well. Just like housing prices can rise, their actual buying power has been declining. This means that for most workers, saving money for the future feels harder because their savings lose value over time due to inflation.
Robert explains that workers often can’t save enough for retirement because inflation erodes the value of the money they save. Without using something called "leverage" (which means using borrowed money to make investments), workers may find it difficult to secure their financial future.
A powerful example shared in the book relates to Germany’s economy before World War II. There's a story of a woman who went to buy bread with a wheelbarrow full of money but returned to find the money stolen and only the wheelbarrow left. This illustrates the risk for savers today, as their money’s value is quickly eaten away by inflation.
One key takeaway from the book is leveraging your money. This involves using borrowed money wisely to make your investments grow. Leverage helps your money work harder for you, even while you’re paying fewer taxes.
Do you know what leverage is?
The concept of leverage is explained using real estate. A typical person saving money in a bank doesn’t use leverage—they have $1, and it’s only worth $1. But in real estate, an investor can borrow large amounts from the bank.
For example, if an investor puts down 20% on a $17 million investment, they’re using a 1:4 leverage ratio. This means that for every dollar they invest, they can control four dollars.
The key to minimizing risk is having control over your property and investment decisions. Without control, leverage can quickly become dangerous.
Many people were hurt during the real estate collapse because they relied on the market to continue rising. They borrowed money against their homes, only for the market to drop, leaving them owing more than their homes were worth. For those who were still able to pay their mortgages, it felt like they had lost money as the value of their property dropped. This is called the “wealth effect,” where people think they’ve gained wealth just because home values have risen. But often, this isn’t true wealth—it’s just inflation.
What makes real estate valuable, according to Robert, is not the price—it’s the rental income.
The true value is determined by what tenants are willing to pay. In a crash, even if the market value of properties drops, rental demand can increase. If rents rise, property values may increase too.
For example, Robert’s investment in a 300-unit apartment building in an area with lots of job opportunities and student growth shows how specific factors like job availability, education, and rent control can boost property value, independent of market crashes.
