Why Would You Invest in a Piece of Paper?

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I had a conversation the other day with an investor who told me he adamantly refuses to even consider investing in stocks as a way to increase and preserve his wealth. His view was that stocks were nothing but pieces of paper, so why would anyone in their right mind put their faith in a scrap of paper instead of something tangible like real estate.

Now, I’m not about to suggest that real estate shouldn’t be included as part of a balanced investment portfolio. Real estate is a good hedge against inflation that can also offer a reliable source of income, and many of my wealthiest clients have substantial real estate holdings. But what I do question is why anyone would view owning a piece of real estate as being at all different from owning a stock?

With both stocks and real estate, you’re really only dealing in pieces of paper. When you invest in a stock, you get a piece of paper that entitles you to partial ownership of a company and a proportionate share of that company’s earnings. When you invest in real estate, you get a different piece of paper that says you own that particular property. Nothing more. Nothing less.

For those who think that being able to knock on the door or touch the bricks and mortar means that your ownership of a property is any more substantial than that piece of paper, just ask the woman who lost half her house to her deadbeat husband in divorce court. Or anyone who’s lost their job and had to stand by and watch while the bank foreclosed on their mortgage.

This isn’t to say that anyone who’s fortunate enough to live in Canada should experience any anxiety about investing in either stocks or real estate. There are notable exceptions, of course. But for the vast majority of us, if you live in Canada and you own something, you can generally expect the courts to support both your rights and your hard-earned money fair and square.

What it does remind us is that, even in Canada, all types of ownership – and all the rights that go along with it – ultimately just come down to a few scraps of paper. Very valuable pieces of paper, which are protected by the rule of law. But pieces of paper all the same, whose true value sometimes only becomes apparent after it gets taken away.

So by all means, invest in real estate. Just don’t overlook the wealth-building power of stocks. Even if you can’t see or feel them, they’re just as tangible, just as protected – and just as real – as real estate.

Alan MacDonald, an investment advisor with Richardson GMP Limited, helps investors with over $500,000 of assets make smart decisions about money. Alan is the co-author of “The Copperjar System, Your Blueprint for Financial Fitness” available on Amazon.

For more information please visit www.alanmacdonald.ca or email Alan at Alan.Macdonald@RichardsonGMP.com.

All material has been prepared by Alan MacDonald, Investment Advisor at Richardson GMP Limited. The opinions expressed in this article are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP or its affiliates.

Richardson GMP Limited, Member Canadian Investor Protection Fund. Richardson is a trade-mark of James Richardson & Sons, Limited. GMP is a registered trade-mark of GMP Securities L.P. Both used under license by Richardson GMP Limited.

For information about placing a sponsored article on OBJ.ca, please contact Terry Tyo at 613-238-1818, ext. 268.

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