In the world of investment, two titans often dominate the conversation: real estate and the stock market. But what if there was a hidden gem that combined the best of both worlds? 

Enter note investing, a strategy that’s been gaining traction among savvy investors looking for a unique blend of stability and returns. Today, we’re diving deep into a comparison of note investing and stock market investing, focusing on risk profiles, potential returns, and market stability. Buckle up, because this might just change the way you think about building wealth! 

The Stock Market Rollercoaster: Thrills and Spills

Let’s start with the familiar: the stock market. It’s the go-to for many investors, offering:

1. Liquidity: Stocks can be bought and sold at the click of a button.
2. Diversity: From tech giants to emerging biotech firms, the options are endless.
3. Potential for high returns: Think of the early investors in Apple or Amazon.

But with great potential comes great risk. The stock market is notoriously volatile, subject to:

• Market sentiment swings
• Economic downturns
• Corporate scandals
• Global events (remember the 2020 crash?)

Dr. Jeremy Siegel, professor of finance at Wharton School, notes: “Stocks are the best-performing asset class over the long term, but they come with significant short-term risks that many investors struggle to stomach.”

Note Investing: The Steady Eddie of Real Estate

Now, let’s explore the world of note investing. When you invest in notes, you’re essentially becoming the bank, purchasing existing mortgages or creating new ones. This strategy offers:

1. Consistent cash flow: Monthly payments from borrowers.
2. Tangible asset backing: Real estate secures the investment.
3. Less correlation with stock market volatility.

Ryan Parson, CEO of Mile Marker Club, explains: “Note investing provides a unique opportunity to benefit from real estate without the headaches of property management. It’s a more passive approach that can yield steady returns.”

Risk Profile: David vs. Goliath

Stock Market Risks:

• Market volatility
• Company-specific risks
• Sector downturns
• Global economic factors

Note Investing Risks:

• Borrower default
• Property value fluctuations
• Interest rate changes
• Regulatory changes

The key difference? Scale and control. With note investing, you have more control over your investment and can often mitigate risks through due diligence and strategic structuring.

Eddie Speed, founder of NoteSchool, emphasizes: “In note investing, you’re not at the mercy of boardroom decisions or market whims. You can actively manage your risk through careful selection and structuring of deals.”

Returns: Slow and Steady vs. Boom and Bust

Stock Market Returns:

• Historical average of 10% annually (S&P 500)
• Potential for explosive growth (think Tesla’s 740% surge in 2020)
• Dividend yields typically 1-4% for blue-chip stocks

Note Investing Returns:

• Typical yields of 8-12% annually
• Potential for higher returns with non-performing notes
• More predictable cash flow

Dave Van Horn, President of PPR Note Co., shares: “While note investing might not make headlines like a soaring tech stock, it offers something equally valuable: consistency. I’ve seen investors achieve double-digit returns year after year, regardless of market conditions.”

Market Stability: Weathering the Storm

Stock Market Stability:

• Highly liquid, but subject to rapid swings
• Influenced by global events and sentiment
• Can experience significant crashes (e.g., 2008, 2020)

Note Investing Stability:

• Less liquid, but more insulated from market swings
• Tied to real estate market, which tends to be more stable
• Cash flow often continues even during economic downturns

Bob Repass, Managing Director of Colonial Funding Group, notes: “During the 2008 financial crisis, many note investors continued to receive payments. The real estate market may slow, but people still prioritize keeping a roof over their heads.”

Diversification: The Holy Grail of Investing

Here’s where things get interesting. Combining stock market investments with note investing can create a powerfully diversified portfolio.

1. Uncorrelated assets: Notes don’t move in lockstep with stocks.
2. Balanced risk profile: High-risk/high-reward stocks balanced by steady note income.
3. Cash flow meets growth: Regular note payments can fund new stock purchases.

Warren Buffett famously said, “Diversification is protection against ignorance.” By adding notes to a stock-heavy portfolio, you’re not just diversifying – you’re creating a fortress of wealth.

The Expert Verdict: A Powerful Combination

We reached out to financial advisor Michael Kitces for his take: “For accredited investors looking to diversify beyond traditional stocks and bonds, note investing can be an attractive option. It offers a unique risk-return profile that can complement a well-structured portfolio.”

Your Path to Financial Freedom

So, what’s the verdict? Like most things in investing, it’s not about choosing one over the other – it’s about finding the right balance for your goals and risk tolerance.

Stock market investing offers:

• Liquidity and potential for high growth
• A passive approach to wealth building
• Easy diversification across sectors and countries

Note investing provides:

• Steady cash flow and tangible asset backing
• More control over investment outcomes
• A hedge against stock market volatility

The winning strategy? A thoughtful combination of both. By balancing the growth potential of stocks with the steady income of notes, you can create a robust portfolio designed to weather any financial storm.

Ready to achieve success in note investing? The best time to start is now! Take advantage of the resources below to learn from industry experts, connect with a thriving community, and unlock your full potential in creative real estate financing.

Your journey toward financial freedom begins today—don’t wait to take the next step!

Whenever you’re ready… here are 4 ways we can help you start your journey into note investing: