What About This “Double-Dip” Thingy? [ October 16th, 2010 ] Posted in » Financial Ideas

For the last few months, this term has been thrown around with almost complete disregard for the likelihood of it happening. But first of all, what is it?

It refers to a fairly significant pull-back in the economy, specifically in the major stock market indices such as the Dow and the S&P 500, as well as consumer sentiment about the near future, very shortly after a previously significant pull-back followed by a partial recovery. To make it simpler, picture a “W” in your mind, where the middle of the “W” doesn’t come completely back to the top, and pretend it’s a graph of the economy.

OK, so that’s what it is, and it’s what we hear about almost every day if we tune into any financial broadcasts or news programs. “This group of economists is saying…..”

So could it really happen? Sure it could happen. It did happen in 1981.

A more relevant question, though, would be “Is it very likely to happen?”

To that, the answer is “no”. In fact, since the Great Depression which began in 1929, the United States has had 12 recessions, including the most recent one in 2008 – 2009. In those 12 recession, we have had exactly 1 double-dip – the aforementioned 1981. And anyone who remembers 1981 also remembers runaway inflation exceeding 15%, home mortgage rates and CD yields in that same range.

This was the direct result of the Federal Reserve jacking up interest rates quickly in an effort to curb inflation and it didn’t work – so we can effectively blame that sole double-dip on something the government caused to happen – and that’s not happening now.

Bottom line? You have better things to think about. Go do that.

Want to know more? Schedule a no-obligation phone consultation at http://www.whattoinvestinnow.com.

Let’s talk, and create a plan that’s right for you and your family.

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Should I Buy A House Now?

Lots of people are asking this question lately. I thought it would be a good time to clarify what I said a few weeks ago about not looking at your primary residence as an investment. Some people thought I meant they should just continue to rent their living space instead of buying it. That couldn’t be further from the truth, so let me explain in more detail.

When you buy a house, you are admittedly taking on a huge responsibility, but one which can pay off handsomely down the road. My parents bought a house in 1964 and took out a 30-year fixed mortgage. The monthly cost of that mortgage was pretty tough for them to swallow in 1964, but in 1984, when they were still paying $296.00 per month, it was a pretty sweet deal!

The logical conclusion from that is to buy as much house as possible, but don’t overbuy. Doing that is part of what got us into the huge mess we’re seeing right now, with record foreclosures. Don’t be afraid of that happening, but also don’t forget that “huge responsibility” part. Buy what you can afford – you can always trade up later when the time is right.

Now, what was I saying about that not being an investment? Just remember, even though it is likely to go up in value over time, that money is tied up unless and until you sell the house, but if you do that, you have to buy something else or rent, because you still need a place to live. The other important consideration is that if you live there for five, ten or more years, you will probably have to replace carpet, paint, perhaps some appliances, maybe even the roof! That’s not money being paid TO you, which is what an investment is supposed to do.

Contrast that with a rental house, where, for example, you might pay $1000 per month for the mortgage, taxes and insurance, and rent it out for $1200. That’s $200 per month INTO your pocket, which is what a good investment is all about.

So, bottom line, buy a house if you can, because the alternative is to pay rent, which is exactly the same thing as paying someone else’s mortgage for them. Just don’t buy more than you can afford and put the rest into real investments, both in the stock and bond markets as well as in real estate.

Contact me if you’d like a professional to help you with doing that!

John@financialideasblog.com

1.888.379.4352  Extension 1000

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November 9th, 2009 | 8 Comments

Don’t Be Apprehensive About The Market!

“Oh, my gosh! Did you see what happened in the stock market today? It was down almost 120 points!”

Ever heard that before? If you haven’t, you will. The question is: should you listen? The answer is: only if you like being really depressed one day and really excited the next day, because that’s typically what happens? Sometimes we get really good days back-to-back and sometimes really bad days a few times in a row, but that’s still not stepping back far enough.

Let’s say you’re 40 years old, and you started putting money into the stock market 20 years ago. The S&P 500 was trading at approximately 340 points, compared to nearly 10,000 today. Or maybe you’re 50 and your start was 30 years ago. The S&P 500 then was trading for about 100 points. So between 1979 and 1989, the market tripled. Between 1989 and 2009, the market grew by 33 times!

Isn’t that a better concept to stick in your mind than what most of the media is alarming you with lately? Like a market down about 33% in the past two years?

The only reason – at all – to be concerned about the short term in the market is if you plan to retire in the next few years. If you’re younger than that or if you like your job, you should be taking advantage of the magic of compounding returns to get you in a position where you have choices! Having the choice to work or not work is a whole lot better than needing to work to make ends meet. That’s when you might have no choice but to be really aggressive, which can hurt a lot if things don’t go the way you hoped.

And don’t listen to people who say you can’t be too conservative, because you can be! Remember my article (below) about the Rule of 72. If you put all your money into CDs right now, your money will grow at a rate lower than inflation. I don’t know about you, but I’d like my money to double sooner than three to four (or more) decades!

Still confused about the right thing to do? Let’s talk, and create a plan that’s right for you and your family.

Email: John@financialideasblog.com

1.888.379.4352  Extension 1000

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November 9th, 2009 | Leave a Comment

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