Comments on: What should you invest in first?

By: Adrian

Adrian — Mon, 25 Jan 2010 05:08:03 +0000

“Since equities also have a good long term investment record, why not scale back on the primary residence somewhat and invest in both real estate and equities?”

@ Rick – Absolutely! The effect of the 20% Equity Rule and 25% Income Rule is to ensure that you are always investing AT LEAST 75% of your networth elsewhere (could be business, RE, equities, etc., etc.).

By: Rick Francis

Rick Francis — Mon, 25 Jan 2010 01:01:08 +0000

Adrian,

I agree with you that in the long run investing in real estate generally will be pretty good… However investing everything in a single property is pretty risky. Traineeinvestor pointed out real estate isn’t a great investment every where… Is it a good investment where you happen to be living? Also, the high transaction costs force you to market time. That may be a good thing or very very bad thing.

Since equities also have a good long term investment record, why not scale back on the primary residence somewhat and invest in both real estate and equities? Other investments also offer a safety net- as you could cash them out to avoid a foreclosure if you ever had a cash flow problem.

-Rick Francis

By: Adrian

Adrian — Fri, 22 Jan 2010 21:11:52 +0000

Yes!

By: Jake @ CareerAde

Jake @ CareerAde — Fri, 22 Jan 2010 17:39:03 +0000

If I it goes in my favor, it clearly was a wise decision.

If I it goes against my favor, it clearly was simple bad luck.

Isn’t that the reasoning that most politicians use for whatever happens during their “reign”? So I should be able to do the same reasoning, no?

By: Adrian

Adrian — Fri, 22 Jan 2010 00:22:14 +0000

“Wise decision – I ended up with a pile of cash”

@ Jake – “wise” or “lucky” … market timer or luck-box … which is it?

By: Jake @ CareerAde

Jake @ CareerAde — Thu, 21 Jan 2010 22:39:55 +0000

@Adrian – what me? a market timer? never! it’s not like I moved all my investments to cash in spring 2008 because I felt nervous, only to buy back into the market in September 2008 – being proud of myself for having avoided a 5% in drop in the market – only then to see my portfolio get CRUSHED in the wake of Lehman?

By: Adrian

Adrian — Thu, 21 Jan 2010 22:01:47 +0000

@ Jake – The whole point of this post is NOT to time the market … you got lucky at the expense of the market, that’s USUALLY not the case.

As for moving: if you KNOW you are going to be moving in a couple of years, sure, hold off

By: Jake @ CareerAde

Jake @ CareerAde — Thu, 21 Jan 2010 14:59:42 +0000

Don’t forget transaction costs – if you know you will be moving in a couple of years you may want to hold off buying -otherwise any gains you may make will happily invested in some realtor’s new Lexus. This is what kept me from buying a place until I ended up way beyond the 20 /25% threshold. Wise decision – I ended up with a pile of cash instead of a ton of negative equity and got a killer deal when I did buy in the down market.

If you are young and single, buying and then renting out extra space to room-mates seems smart.

By: traineeinvestor

traineeinvestor — Thu, 21 Jan 2010 08:41:07 +0000

While I am generally a fan of real estate and home ownership, there are plenty of examples where home prices have either failed to appreciate in real terms for very long periods (e.g. parts of Western Europe) or even declined (e.g. Japan over the last 20 years).

IIRC, studies have shown that planning restrictions affecting the supply of land and demographic trends have been the biggest long term influences on house prices. In the shorter term, other factors such an employment and availability of credit are also relevant.

One of the other issues for property at the moment is property taxes. Historically in many places they have risen faster than the general rate of inflation. With a lot of state/local governments desperate for cash to pay the civil servants’ etc it is a good bet that the trend will continue. This is not necessarily a deciding issue – just one more factor to take into account.