Housing - From Boom To Bust

[Nbadan]

Yup. Index funds, index funds, index funds

Growth funds, stock funds, bond funds, international funds, even Index funds can make your head spin.

[2centsworth]

Yup. Index funds, index funds, index funds.

The S&P500 Index over the past 20 years has averaged 13% per year. The average investor in the S&P500 Index earned a little more than 3%.

The point is whether you index, use active mgt., or anything else, the biggest obstacle is controlling ones emotions.

So NOPE, Indexing makes little to no difference.

The interesting thing about owning a house is that the value of the housing, in terms of cash flows/opportunity costs, goes up with inflation, i.e. once you own your home, you avoid increases in the other option to owning-- renting.

In English, owning a home should be everyone's first investment.

[Nbadan]

Whenever anyone pimps the economy you can bet that things will soon go sour.

OFFICIAL FSP RECESSION ALERT - Ignore at your own peril...

WASHINGTON (Marke ch) - The United States is headed for a recession that will be "much nastier, deeper and more protracted" than the 2001 recession, says Nouriel Roubini, president of Roubini Global Economics.

Writing on his blog on Wednesday, Roubini repeated his call that the U.S. would be in a recession in 2007, arguing that the collapse of housing will bring down the rest of the economy. Read more.

Roubini wrote after the National Association of Realtors reported Wednesday that sales of existing homes fell 4.1% in July, while inventories soared to a 13-year high and prices flattened out year-over-year.

"This is the biggest housing slump in the last four or five decades: every housing indictor is in free fall, including now housing prices," Roubini said. The decline in investment in the housing sector will exceed the drop in investment when the Nasdaq collapsed in 2000 and 2001, he said.

And the impact of the bursting of the bubble will affect every household in America, not just the few people who owned significant shares in technology companies during the dot-com boom, he said. Prices are falling even in the Midwest, which never experienced a bubble, "a scary signal" of how much pain the drop in household wealth could cause.

Market Watch

I hope at least some of you took my warnings seriously. I really do.

[RandomGuy]

The S&P500 Index over the past 20 years has averaged 13% per year. The average investor in the S&P500 Index earned a little more than 3%.

Heh, you will never get the rah-rah stock guys to admit that. It is one of my biggest complaints about most "financial advisors". They hear all sorts of rah-rah propaganda about investing in stocks and other stuff, and go charging off and thinking that stock markets are the end-all be-all of retirement planning.

As I have said before, there are SOME good ones out there that have some certification, but no small number of them I consider to be charlatans.

The point is whether you index, use active mgt., or anything else, the biggest obstacle is controlling ones emotions.

I bought Merck stock at 75. Today it (and the medco spinoff) make my shares worth roughly half that. Why have I not sold it? Because I have set aside my emotions and realize that it offers a dividend reinvestment plan. Dividends for large mature companies rarely decrease. So when the stock tanks I get to buy more shares with my (normally) unchanged dividends. Vioxx shmiox. My investment time horizon will be looooonng after the last vioxx suit is settled, and by then those constant reinvestments in depressed stocks will have paid hansomely. (look up "dollar-cost averaging")

You might also want to mention the famous "dart-throw" challenge that the Wall Street Journal used to do.

They would have an intern toss darts at the stock pages of the WSJ and then put together a portfolio based on those dart tosses.

They would then invite "experts" to pick a stock portfolio and compared the results after a year.

Care to guess which portfolios tended to do better?

So NOPE, Indexing makes little to no difference.

I would say that depends on the fund. Low/no load funds with LOTS of diversification are the way to go. They take the emotion out of it.

In English, owning a home should be everyone's first investment.

Yup.

I believe that the US economy is in for a very bumpy ride as we transition to more expensive energy over the next 40 years. The best bet against any uncertainty from that is to own a house.

[RandomGuy]

Bump.

[Extra Stout]

OK, RG, I can agree that ac ulating home equity is a decent low-risk investment in lieu of acquiring T-bills.

[RandomGuy]

OK, RG, I can agree that ac ulating home equity is a decent low-risk investment in lieu of acquiring T-bills.

YAY!

Sorry to belabor the point. It is something I believe strongly in, and something people should know about.