My dad used to give me a dollar a week and told me to be smart and save it in the bank. I never did. Instead I’d almost immediately take my dollar to the nearby market and spend it on candy.
If I had listened to my dad and saved every dollar he gave me back then, adding interest compounded annually, I’d have about $8,000 today. That’s assuming zero bank fees and the higher interest rates banks used to pay. I don’t have the eight grand but I do have wonderful memories of eating candy with my friends.
Today, if you took a dollar a week and put it in the bank at lets say 1.5% interest, at the end of the year you’d have less than 53 dollars. That’s also assuming no bank fees or candy purchases.
Saving money in the bank is actually costing you money when you factor in bank fees and inflation. Not the deal it used to be.
Off-shore banks pay better interest rates however Uncle Sam woke up and realized American’s weren’t paying taxes on those off-shore accounts and he got kind of angry about it. Then, post 9-11, Uncle Sam was given authority to pay closer attention to dollars coming back from off-shore and, well, wouldn’t you know, he’s now able to tax you on that money just as if it were here in America all along. Those taxes and our Uncle’s ability to scrutinize dollar amounts greater than $10K coming back into the US kind of mitigates a lot of the benefit we used to realize from keeping money off-shore.
Ok, so what about Stocks?
If you’re smart, savvy, and you have the ability to work your portfolio everyday without fail, you might do pretty well in stocks. But in order to get the big score you have to take higher risks. Taking higher risks means you can, and most often do, lose all your money very quickly. Losing money in the stock market is like losing money in Las Vegas minus the cocktail waitress and free drinks.
So what’s looking like it could make a come back?
Real Estate. Buying Real Estate has had some ups and downs and if you bought say four years ago I’m not going to convince you that buying Real Estate now is a great idea. Still, when you average home prices over time Real Estate almost never loses its value and I don’t know of any case where its lost all of it’s value overnight the way my Enron stock did.
The Real Estate market has been sinking for nearly five years. No one can say if we’ve hit bottom or not. The banks still have millions of foreclosures to work through and that does impact the market negatively. But at some point the market is going to turn. For all the same reasons Real Estate has done so well in the past, it will do well again in the future. Typically when Real Estate rebounds it does so with gusto.
Lets break it down. Home prices are cheaper than ever. The banks are lending at historically low interest rates if you qualify. And home prices have to go up sooner or later. From my perspective Real Estate seems like the surest bet.
If the bottom does fall out: You can’t live in your stock portfolio but you can always live in a house.
Note: Besides being a CFII, MEI, Pilot, I’m a Title Rep. (Tie-tél Rep; a person or reptile that scurries through Real Estate Offices and Lending institutions in search of food, stopping at nothing, including stepping on other Title Reps in its pursuit.) In other words, I sell Title Insurance. I am not a financial advisor so do your own research before investing. Comments made here are my own and do not necessarily belong to my employer; Chicago Title & Escrow.
For more information about Title Insurance or flying airplanes, contact me directly at ric.Lippincott@ctt.com.