Retiring Early with Stock Market Investments Only

[Kiwi Mustache]

Many on here dream of retiring early.

Several books I've been reading recently promote real estate as being superior due to the fact you can borrow/leaverage your money and create equity faster compared to stock market investing where borrowing money is more difficult and creating equity is somewhat out of your hands.

Has anyone retired early on stock market investments alone? Did you do it on a modest salary and how did you go about it?

[frugledoc]

I think it is better to diversity and own some equities, properties and even bonds and cash.

I don't like leverage, even for property, although I did make my best profit ever on a london property.

Anecdotally, property can be a real pain the ass to manage, even with just one property.

[MDM]

Yes.  No real estate holdings other than our home.

Over the years we did have one rental and seller-financed a home sale, but the majority of net worth accumulation has been the "traditional":
 - Live below our means
 - Maximize tax advantaged investments
 - Maximize ESPP opportunities
 - Invest in stock index funds
 - Don't try to time the market

Looking back there were of course mistakes - holding too many of those ESPP shares is one - but the general approach suggested by MMM, Bogleheads, etc. worked for us.

[KBecks2]

We invest only in the stock market.  We are not necessarily retiring early, but we are doing well financially and will have flexibility to retire early or keep working or whatever.

 I invested regularly in an index fund throughout my career, and I also participated in 401k. 
We are still saving and investing regularly.

Recently I looked at real estate but we decided stocks were a better plan for us than being landlords.  So I have decided to focus on stocks and become great at stock market investing.  I am also learning to use options strategies for income.

[forummm]

I invest only in the stock market. I will get some exposure to real estate through REITs (I only hold them through VTSAX now, but will add a 5-10% allocation in the future). During the foreclosure crisis, I thought it would be a great idea to buy up a bunch of super-cheap foreclosures, fix them up a little, be a landlord for awhile, and then sell the properties once the housing market returned. Well, it ended up being way more hassle than it was worth. I bought 2 houses, lived in one, and did renovations on the other. At the end of the renovations, I was burned out. It was too much on top of my day job. And I'm not the kind of person to deal with people and all the landlord hassle. It wasn't the best use of my time. I prefer to just invest passively in the markets. I am more efficient at making money through my day job. My life is better without the landlord work hanging over my head.

[Retire-Canada]

And I'm not the kind of person to deal with people and all the landlord hassle. It wasn't the best use of my time. I prefer to just invest passively in the markets. I am more efficient at making money through my day job. My life is better without the landlord work hanging over my head.

I can relate to this. I'd rather work at a desk than deal with rental properties.

I'm invested in the stock market including some REITs. I like to travel so having all my investments accessible via a laptop is simpler/easier for me.

With buy and hold investments I can ignore them for months at a time - years really if I wanted to and not have any problems.

-- Vik

[forummm]

And I'm not the kind of person to deal with people and all the landlord hassle. It wasn't the best use of my time. I prefer to just invest passively in the markets. I am more efficient at making money through my day job. My life is better without the landlord work hanging over my head.

I can relate to this. I'd rather work at a desk than deal with rental properties.

I'm invested in the stock market including some REITs. I like to travel so having all my investments accessible via a laptop is simpler/easier for me.

With buy and hold investments I can ignore them for months at a time - years really if I wanted to and not have any problems.

-- Vik

I also wanted the freedom to be able to travel or move to a different state. Technically you can hire a property management company to handle things for you, but then they are eating into whatever profits you would be getting in the first place. And if you're going to hire a management company, why not get the benefits of geographic and asset class diversity and liquidity all while eliminating any liability concerns at the same time. Even with an LLC and umbrella policy, I was still worried about the hassle of getting sued. Small likelihood of happening, but it still worried me. I'm not the kind of person to have my own business. It was important to know that. I sleep better.

[arebelspy]

I also wanted the freedom to be able to travel or move to a different state.

I don't see that as impediment. I plan to not be in the same country as my RE holdings.

Technically you can hire a property management company to handle things for you, but then they are eating into whatever profits you would be getting in the first place.

You just build that into the numbers. I wouldn't buy a property that didn't cash flow well with all expenses counted in, including management.

Real estate isn't for everyone, no doubt, but wanted to chime in for those reading that might be dissuaded: there are concerns with RE, but I'm not sure I agree with those ones. :)

[Retired To Win]

I too have almost all my invested money in stocks.  (I don't count our house as an investment.)  I do have about 5% of my stash in Lending Club notes.  And we are considering converting a second house we own into a rental.

[Indexer]

And I'm not the kind of person to deal with people and all the landlord hassle. It wasn't the best use of my time. I prefer to just invest passively in the markets. I am more efficient at making money through my day job. My life is better without the landlord work hanging over my head.

+1.  I'm 100% comfortable with a diversified stock portfolio.  Any one company fails... who cares.  If the stock market tanks the dividends keep on coming in and everything goes on sale.

I'm fine with a REIT because its a pool of real estate.  I'm not ok with being a landlord because that is not diversified, and I have to worry about people destroying the assets or having to evict people. 

[bigchrisb]

Aside from a house I intend to live in, I'm 100% stocks & commercial RE, including leverage on the stocks (portfolio value approx $2.5M, debt approx $1M).  Its worked out well for me, I'm age 33, have a $1.55M net worth and now 3% SWR - below the current dividend yield of my portfolio. I've had an above average, but not astronomic income.

Leverage does amazing thing when you get lucky on the timing (leverage into the last ~7 years stock bull market, leverage into housing during sub-prime crash), but horrible things when you are unlucky (margin pre GFC and leveraged real estate during the RE crash).   

Most people talking about it will have some recency bias.  I love my margin loans!  Why?  Because I've held them through a very lucky part of the cycle.   Its the same with RE loans - recent memory for these is very successful.

Yes, leverage can help you reach goals faster, but it can also lead to a bust outcome. If I were doing it over again, or recommending to others, I'd suggest having a lower degree of leverage than I did - its got a much more stable range of outcomes, at the cost of not all that much time.

In terms of stocks or RE, people have had success with both. People also tend to group together in their own kool-aid quaffing groups, cheering on what they know and believe in.  Easiest example?  Post your original post in the RE part of this forum, and you will get a response of "Why would you bother with anything except RE?  I can be an expert in my asset and get outsize returns". Post it here in investor alley, and you will get "RE?  That's way too much work. Why would I take on all the concentration risk in choosing an individual asset I think will outperform?  I don't try to pick individual stocks, which are highly diversified companies, so why would I think I can pick an outperforming individual house?  Why would you bother with anything except stocks?". 

Like most debates, there are strengths on both arguments, and both can achieve an early FI outcome.  However, individuals, and their psychology may be better suited to one or the other.  The optimum allocation is probably a bit of both over the full cycle.