December 7, 2021

When I hear friends talking up the wonders of index funds, I have conflicted feelings. On one hand, it’s great that they want to invest. On the other hand, index funds are not a golden ticket. By playing a game of averages, these funds can build wealth and also hold you back.

The case for index funds is that they typically perform as well as human-managed mutual funds, and their algorithmic decision making saves the cost of expensive fund managers. Compounded over decades, lower fees can put more than a little pocket change into your retirement account.

On the downside, both index funds and mutual funds suffer from the same flaw (which is also their strength). They produce average returns within their given sector. Buying funds is like seeking the safety of a herd. You probably won’t be killed, but you’re also stuck eating the same grass that everybody else has.

I for one am not satisfied with average investment returns. To do better, I make individual investments in properties that meet my own criteria for risk and expected return. My team’s diligence in doing their homework and specialty in a specific type of investment (single tenant net lease) means that when we close a deal, we’re confident that we’ll have market beating returns. And have a long track record of doing so.

One thing I love about real estate is that it’s tangible. I can go inspect properties and evaluate neighborhoods. By also looking at data on historical prices, rental rates, taxation, zoning rules, building permits, etc. I can project future cash flows without having to make big assumptions about growth, innovation, or changing consumer tastes. This ability to drill down on the details and deeply understand an asset’s value is what enables me to pick out great investments and earn market beating returns.

There is still a place for index funds in my portfolio. Even after I do my diligence and make great deals, I still need to diversify my portfolio. Having tenants across a variety of industries allows for some diversification. Index funds let me diversify my portfolio into sectors and geographies that don’t correlate at all with US real estate. Diversification is the goal, so it doesn’t matter that I get average returns on a portion of my portfolio. That’s actually the point.

I’ve said it a thousand times, and I’ll keep saying it: Everybody should be investing. Index funds offer a viable option for the “lazy” investor who doesn’t have the time or ability to dive deep, or a trusted investment- like Alliance. If you’re OK with average returns, index funds are for you. And if you want to do better, then segment your portfolio with a portion for active ventures like individual stocks and real estate along with a portion for index funds.

Call me at 847-317-0077, email me at breinberg@alliancecgc.com, or tweet me at @benreinberg or @alliancecgc if you can submit us a property to acquire and/or would like to invest with us. For further information on investing with Alliance, please click here.

My Best,


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