Big News today that brought back memories of childhood Fridays at 8pm, when The Brady Bunch came on ABC to start off the weekend in many suburban homes.
The Brady Bunch’s Jan Brady, lost middle child idol of my yute, (aka actress Eve Plumb), made USA Today by selling a Malibu home for $3.9 million that she bought in 1969 for $55,300.
(Don’t mind the sloppy writing of their lede, I guess Gannett hires anybody these days.)
A couple quick points before you say “nice job Jan.” See, nothing the middle child does is ever — Ever! — good enough!! (But I digress.)
First, over the 47 years of ownership, I’m sure the property needed repair to the physical plant — new roofs, systems upgrades. Not to mention maintenance, taxes, insurances… So there were additional costs of ownership.
But even if there weren’t and it were a museum piece, never touched, over 47 years that increase in value on a compound annual basis is 9.4 percent. Which yes is a lot better than keeping it under the mattress or in a Treasury bond.
But let’s quickly compare it to a couple alternatives.
Suppose Jan just wanted to match the S&P 500 index, take out the dividends, and leave the rest to grow, never selling. No cap gains. That way, there would be no insurance to pay or roof to replace.
How much would that $55,300 have turned into? Well, according to info I found from the Stern School of Business at NYU… it would have turned into about $3 million (8.8 percent compounded annually), but that excludes dividend reinvestment. If you assume dividend reinvestment, it would have grown into a much larger amount.
But here’s the real eye opener. Suppose instead of buying the Malibu house (not even 1000 square feet by the way!) she had bought stock in Warren Buffett’s Berkshire Hathaway company. I know, 20/20 hindsight.
From 1969 to today, Berkshire Hathaway has increased in value at a 19 percent compound annual rate. Every 3 1/2 years, your money would have doubled.
So Jan’s $55,300, given to Warren while she went through 47 years of being one of the other Bradys (crap even Alice got more attention for Gods sake!), would have become
Two Hundred Million Dollars!
So what’s my point? First, I guess Jan got a nice story, maybe some long overdue attention. Middle children everywhere thank you, Jan.
Second, compound interest is very powerful. It can take something small and turn it into something big, over a long timeframe. This can work to your benefit, and to your detriment. Understand it, or know someone who does.
Finally, real estate can be a good investment, a great investment, or a bad investment. It depends. It is not always good, great, or bad, at all times, places, circumstances, or for all people. Only someone who understands your specific needs and objectives, and understands the specific markets in question, can make that assessment. Anyone who implies otherwise is a fool.by