Uh, oh! The stock market is heading downhill—again—and housing prices are still at near all-time lows. Lowering the U.S.’s credit rating and those of mortgage lenders Fannie Mae and Freddie Mac means home interest rates are going to start heading up, and soon.
Panicked traders are saying, “Sell, sell, sell.” The markets are taking a tumble so pull your money out and head for the hills. Take a loss and save what you’ve got left.
So what should the smart American to do? The answer is one simple word: buy.
Basic economic theory says to “buy low, sell high.” The good news about cycles is that they go down, like they are now, then go back up. Sure, it may take years before the housing market returns to its pre-crash levels, but it will get there.
Take a look at two facts and the logical conclusions you can draw from them.
Fact 1: People need places to sleep. Whether they own or rent is not as critical as having a place to live. If you can afford to carefully research and buy property, then keep it for a few years, you will see a profit.
Fact 2: Just because the stock market takes a dump does not mean the companies listed on each exchange are suddenly worse off than they were before the crash. Look at the underlying numbers behind individual companies. If a particular firm looks solid, and their projections have merit, even if the firm’s stock price is low, then buy it. You might find yourself making a hefty profit in a month or two, maybe a year or longer.
Even though now is a great time to buy stocks and real estate—I have portfolios with Merrill-Lynch and Morgan-Stanley—understand these two cautions before plunking down a single dollar:
1. There are serious risks so don’t invest any money you can’t afford to lose. If you think you can buy a home in Las Vegas, Nev. today and sell it for a profit before your next mortgage payment is due, you are in for a rude awakening.
2. Your profit and risk reduction is directly proportional to the amount of research you do.
Before buying property, take a close look at the area. Get answers to these questions first or you may lose your investment.
Questions to ask are:
· Why would someone choose to live here, wherever “here” is?
· Are there enough jobs to support the people already living “here”?
· What is the economic outlook for both more jobs being added or a major employer canning everyone and sending its workforce overseas?
· What types of housing are most depressed in this particular area? What makes the most sense to buy? Suggestion: detached single family homes and condos/townhouses work well initially as rentals. Should property values recover enough, you can sell them.
· Are there “things” (such as schools, shopping and recreation) that make this area more attractive than somewhere else?
Before buying stocks, take a close look at the company. Does it have a solid financial base? Does it have a logical plan for future growth? Most importantly, is there a demand for its products and will that demand increase or decrease?
Every product has a cycle that starts when word first gets out about it, when it hits the streets, when it gets glowing reviews, when sales start to level off, and when the next new product comes out. Savvy investors get in early then either bail out before the end or, if the company has a track record of producing innovative products, stay with the firm for the long haul.
DISCLAIMER: The author is NOT a financial expert but does have a mortgage, IRA and investment portfolio. These suggestions are based strictly on logic, elementary economic education and experience. The author does not suggest ANYONE invest without clearly understanding that they could lose their entire investment.
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