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| bobis |
 Posted: Mon May 22, 2006 4:43 pm Post subject: My econ teacher |
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Investing Sr. Associate
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My economy teacher in junior College(East Los Angeles College) says saving money is bad for the economy. He says it is bad because it is there to be spent to help the economy flow. I dont know about the economy but I feel more secure with saving in a CD than investing in anything. A CD doesent have that much yeild but still you wont loose any money and its a secure investment. He feel all investments aside from real estate are bad. That Stocks, Bonds, CDs, are all bad but I never heard him say anything about IRAs. He was in the Military prior to becoming a junior college professor but they are both Government jobs so hes pretty secure in his retirement I would think.
M y question is If someone told you that Stocks, Bonds, CDs, etc. are all bad how would you reply and remember he will give you your junior college economy grade. |
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| MrT |
| Posted: Tue May 23, 2006 6:06 am Post subject: |
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Investing Sr. Associate
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I would say exactly what the guy who is trying to sell you sketchy stocks would say:
"Although historic returns are no indication of future returns, historically investing in real estate does not give as good returns as the stock market over an extended period (more than 10 years)."
More-so, I would add that real estate is also a poor investment because it is difficult to take into account additional expenses from upkeep, property taxes, insurance, closing costs, etc. On top of that, it requires an extensive amount of time to take care of a home as an investment.
I don't think anyone here is going to do your homework for you, but if I were you, I would find some data on inflation adjusted real estate returns vs stock market returns for every 10 or 20 year period over the past 100 years or so. I've seen these things in one place or another, and I know it shows that most of the time real estate doesn't pay out as well. Remember, you have to go by average returns, and not assume that everyone investing in real estate is buying it in 1999 in California. A good case example is pointing out the 80's market crash out there were some people bought in at the exact wrong time, and the value of the home didn't even come back up to the buying price for 10 years, and that's before considering the cost of upkeep on the home.
My opinion, that I think I can argue fairly well is that real estate purely as an investment has historically been a poor choice versus putting money in the stock market, at least for your average middle class American. That could change, but unless you have a crystal ball, I would go with history because it's the best to go on.
Now, as a business, for someone with some money,time, and willingness to work, buying and selling real estate can be quite lucrative. There are plently of cases, even in regions where home prices don't appreciate at all, where someone can make good money on the side by buying a fixer-upper, living in it while making it look better, and selling it for more than they bought it for. But in that case, people remove some of their expenses by having the benifit of not paying rent somewhere.
One more note, on the real estate vs stocks debate. I can think of lots of cases where your total net worth would be increased more by buying a home than by investing in the stock market. For example, in a region where the cost of rent is high, and the equivalent cost of a home (interest payments+upkeep+insurance+taxes+closing costs) is pretty close or even less, then you could possibly increase your bottom line pretty easily by the price of home swinging upwards, especially if you really didn't have to put much money down for the home, and can have no problem selling for a profit and going back to an apartment, or something cheaper. The problem for using real estate not purely as an investment, but also a place to live, is that it is probably the hardest investment to liquidate. Most people reinvest their "return" on a home to buy another home, and just increase their quality of living. At least with stocks, you can wake up one morning, cash out of everything, and buy whatever you want, including real estate immediately. For someone who is saving up for retirement by investing in their home instead of stocks, bonds, etc., it is a lot harder to tell what their potential retirement income is because the only way to get at it is to sell the home and downsize. I would rather invest in stocks and such while living in a more moderate home so that I can know exactly how much money I can expect at retirement.
Good luck with the class! |
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