'Why do you want to be a millionaire?' ...

joyfulguyJanuary 20, 2008

... is the topic of a poll on the "Motley Fool" investment advisory at the moment.

Here are the choices - which ones have the highest priority with participants here?

1. So I can stop waiting for the good life.

2. So I can be financially secure.

3. So I can quit my job.

4. So I can make sure my kids have everything that I didn't have.

5. So I can make a difference in the world.

I'm waiting with bated breath to hear your choices.

Hope you all have a great weekend (what's left of it).

ole joyful

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Well, being a millionaire is so commonplace these days, the US government stopped tracking such data...but I get your point.

Financial security is important to us for a couple of reasons. First, we have no children - nobody to really depend upon if something goes wrong. Being able to take care of ourselves financially is critical. We do have relatives, but don't wish to be a burden on them.

Both my own and DH's parents were underfunded for retirement. My mother died recently just before running out of money (whew!); my MIL had to sell her beloved house to have enough $$ for sufficient funds, as I estimate she has a 50-50% chance of outliving us.

Having seen an increasing percentage of our parents' generation needing extensive convalescent and home services care, little of which is paid for by the government, we wanted to avoid being a "Medicaid granny" in our old age.

As is borne out by extensive government statistics, the US middle class income for the past 20 years has basically stayed flat after adjusting for inflation (see excerpt below from an Oct 2007 WSJournal article).

We don't live especially frugally, and started saving much later than we should have, due to a personal bankruptcy in 1993. But we struggled through it and have recovered to a net worth of slightly over $1M, not including either insurance nor my DH's pension for his 40 yrs of government work. I estimate this to be worth about $1.7M on its own since it includes full retirement health and dental benefits. He's eligible to retire later this year, but has just taken a new departmental job and will probably postpone retiring for another couple of years to help his boss out.

Sadly, most people don't have the guaranteed pension option, let along retiree health benefits. I'd say about half the people I know that are around our age, have much less savings/net worth. One-quarter are around our same level, and one-quarter are much more affluent (there's a high percentage of the affluent at all age levels, here in the San Francisco Bay Area).

Excerpt: "...based on a new set of data from the I.R.S. It showed that Americas most wealthy earn an even greater share of the nationÂs income than they did in 2000, at the peak of the tech boom. The wealthiest 1 percent of Americans, the Wall Street Journal reported, earned 21.2 percent of all income in 2005 (the latest date at which this data are available), up from the high of 20.8 percent theyÂd reached in the bull market of 2000. The bottom 50 percent of people earned 12.8 percent of all income, compared with 13 percent in 2000. And the median tax filerÂs income fell 2 percent when adjusted for inflation (to about $31,000) between 2000 and 2005.

More and more people are being priced out of a middle class existence. Because of housing prices, because of health care costs, because of tax policy, because of the cost of child care, The Good Life  a life of relative comfort and financial security  is now, in many parts of the country, an upper-middle-class luxury."
WSJournal 10/19/07

    Bookmark   January 20, 2008 at 1:38PM
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i want to be a billionaire, so i can step on the common folk!

    Bookmark   January 20, 2008 at 7:13PM
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A million dollars is in the ball park of what is required for a comfortable retirement in North America these days. That is assuming no pension from work. Young people of my acquaintance are being told that they will require over two million by the time that they retire. A million dollars is just not what it once was.

    Bookmark   January 20, 2008 at 7:19PM
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Come on, you guys!

When you're doing a poll, you get to choose among various options presented, you almost never are allowed to make your own commentary - can you imagine the frustration of a pollster, trying to collate all of those individual self-choice replies and make any sense of them?!

1. Stop waiting - good life.

........Crowding 80, haven't taken a pill in 30 years, personal choice for frugal living (20-year-old car), living on less than three pensions, without needing ivestment income, kids independent ... I'm living the good life.

2. Financially secure. ......... See answer to No.l.

3. Quit job ......... See answer No. 1.

4. Kids have everything

......... They're in their 40's - making their way in the world is their responsibility. I'd be doing them no favours by spoiling the little buggers, anyway!

5. Make a difference in the world

........ Trying to do some of that. Lots more needs to be done - if we're to have a happy world!

ole joyful

    Bookmark   January 20, 2008 at 10:57PM
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Oh, okay, sorry for the mixup. Mine would definitely be #2, except that I just don't think $1M makes for any financial security in the US unless you're one of the few, like my DH, who has a pension. If you don't have a guaranteed pension, $1M is chicken feed to support you for 40-50 yrs of retirement life expectancy in any major US city. You would easily need in the $2M+ range or more.

The other reasons don't work for me because:

1) We already live a very good life - every day is a gift to us, my DH having survived a fairly serious stroke at age 50 and being 99% recovered from it. We have a cute cottage with updated amenities, live in one of the most glorious regions in the world, have good friends and loving family nearby.

3) Already retired early at age 56. My DH is eligible to retire Oct 2007 at 55, but as I mentioned above, will probably work a couple of years longer by choice.

4) No kids. As one retirement article said, if you want to retire early, don't have kids! It's hard to have both.

5) If you try to be the best person you can possibly be, you WILL make a difference in the world. Newspapers may never write about you, but the love you give to those around you is never lost. It continues on, having an impact far beyond your individual sphere.

    Bookmark   January 21, 2008 at 4:22PM
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1. So I can stop waiting for the good life.
I am not waiting for 'the good life'... I am living a good life!

2. So I can be financially secure.
I am secure enough now.

3. So I can quit my job.
I am a SAHM....

4. So I can make sure my kids have everything that I didn't have.
They didn't get EVERYTHING I did not have... but they had it good.

5. So I can make a difference in the world.
BINGO! This is MY choice. I would do something wonderful with the money that will enable opportunities for others.

    Bookmark   January 21, 2008 at 4:57PM
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I've been a millionaire for a few years already -- it didn't change my life, but it sure made my job more fun! Everyone at work knows I'm just there because I enjoy the experience.

So, put me down for choice #2.

Oh, and don't tell my kids :-)

    Bookmark   January 21, 2008 at 5:53PM
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Looks like you guys are fairly happy with life.

1. So I can stop waiting for the good life ...

... was chosen by 515 respondents in the "Motley Fool" poll, for 7% of the total, as of the time that I looked at it.

o j

    Bookmark   January 21, 2008 at 8:16PM
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Can I choose all of the above? Well, except for #4. I don't have kids, and I don't plan to have any. They're too expensive ;)

    Bookmark   January 21, 2008 at 10:45PM
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#3, I'd like to spend more time with the kids, not give them or us more material things.

    Bookmark   January 22, 2008 at 8:25AM
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It's a toss up between #3 and #5. It would be great not to work but the more money you make the more opportunities to give it away to help those less fortunate. NancyLouise

    Bookmark   January 22, 2008 at 8:58AM
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I'd like to have reported on some more of the choices that over 100,000 people made on Motley Fool ...

... but I'm not at home, where I recorded the numbers.

Will come back with them later tonight, likely.

ole joyful

    Bookmark   January 23, 2008 at 4:27PM
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Split between #2 and #3. Maybe you can change that to "#2 so i can #3 and get a job i actually can stand."

Plus, spend a month in Italy.

    Bookmark   January 24, 2008 at 1:09PM
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A Million is chump change to strive for if anyone is in their 20's or 30's, if they want to have a life style that doesn't include "Wal-Mart Greeter".

They've got 20-50 years to get to the point where they will retire. I can live on what I've got, but I'm there already. Who knows what inflation or deflation will bring?

To answer your question, I don't want to be a millionaire... already past that milestone!! :)

    Bookmark   January 31, 2008 at 8:23PM
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Maybe we need a revision, as far as we're concerned (well, speak for yourselves - I'm nowhere near being a millionaire: wasn't before recent market drop, either).

How about, "Why do you want to be, or what is it that you like best about being, a millionaire"?

Or, possibly, "Why do you want to be a single, double or triple millionaire"?

But - this thread started out as a report of what I considered an interesting poll on the "Motley Fool" financial advisory website, where their respondents replied as follows:

1. So I can stop waiting for the good life. ... 515 ... 7%

2. So I can be financially secure. ... 4,054 ... 56%

3. So I can quit my job. ... 882 ... 12%

4. So I can make sure my kids have everything that I didn't have. ... 415 ... 6%

5. So I can make a difference in the world. ... 1,326 ... 18%

I note that two of the five attracted less than 10% of respondents and that one, the first had substantially a negative emphasis. The other had folks, after treating their kids reasonably decently, I assume, choosing not to take a risk of spoiling them!

It seems to me that it's important to have a cushion, some money on hand in case of emergency, as I've recommended to many. I'd almost sweat blood if I'd be out of money were I to miss a couple of paycheques ... but millions seem willing to do that (subtract a credit card or two, which gives to many the impression/illusion of adequate funding). Having a substantial asset gives one even more freedom, as housenewbie referred to being able to quit her job, enjoying the bonus of a longer interval during which to search for an alternate, more attractive income source.

The value of a million changes depending on age level: if one is closing in on normal retirement age, possibly choose to retire early, especially if one has a reasonable pension credit.

Now nearing age 80, I'm not nearly as concerned about amassing such an amount in order to feel able to operate comfortably throughout my expected lifespan. Especially since I have fairly stable pensions as part of my asset base.

But if I were 20 or so, I agree with Gina in FL that a million would appear too small a goal, I think.

I hope that:
1. you found the poll result interesting and enjoyable,
2. you've achieved, or are working toward a (reasonably) secure future and
3. enjoying life as you go.

ole joyful

    Bookmark   February 1, 2008 at 10:15PM
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Another good mental exercise (for those of us who aren't millionaires and have no expectation of becoming a millionaire) would be to ask yourself, "If I were to become a millionaire tomorrow, what would I do differently in my life?"

Then, ask yourself why you're not doing those things right now. Because most of the things people say they'd do with a million dollars are really not all that life-changing. Paying off a home or other debt would feel good for a few days, and then after that the novelty wears off and life just assumes a new set of ground rules. Most of the other dreams people have for "life after a million dollars," such as spending more time with family, taking more vacations, etc., are probably not that much more achievable "after" a million than before. Reordering of priorities can bring these things about right now. And if the priorities can't be shifted now, they probably can't when you're rich, either, because few of us are satisfied with the status quo -- we want more.

An intangible and elusive quality -- security -- is why a lot of people want money, but if you think about it, money does not bring security. If you have money, you must protect it aggressively: No one sues a poor person, after all. In fact, I think it could be argued that money creates less security, because when you're rich, not only do you become a bigger and more appealing target, but you develop a lifestyle that requires large sums of money just to keep going, so threats to your level of wealth are threats to your well-being.

I know I wouldn't turn it down if it were offered to me, but I think I can honestly say I have no great desire to have a million dollars. I feel I would lose a lot of friends, for one thing, and I would have many requests for aid and assistance, and would then have to weigh these requests and decide whom to give money to, inevitably making some people unhappy.

If I did have a million bucks, I would not tell a soul.

    Bookmark   February 1, 2008 at 11:46PM
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According to most financial advisers, one million dollars is needed to generate an inflation protected $40K to $50K annual retirement income. That may or may not be enough for a comfortable retirement depending on one's lifestyle and other sources of income.

Many studies have been performed that correlate wealth with other variables including happiness. Here's a link to a summary of a recent study.

Happiness Study

    Bookmark   February 2, 2008 at 1:54AM
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The study cited in the page above correlates happiness primarily with living in a wealthy country. I think we can all come up with quite a few reasons why it might make you happier to live in a wealthier country, among them -
- drive a car rather than ride a bike
- live in a reasonably comfortable home
- have access to a well-developed infrastructure in such areas as health care, transportation, communications

I don't think anyone would argue that you tend to be happier in a wealthier place.

How I took the question was, "How would my own life be different if I got a million dollars right now," and my comments all relate to that. I'm basing what I have said just on personal observation: For most people, it seems, more money leads to greater happiness only if it elevates them out of poverty, or allows them to solve a specific money-related problem. But, again, just based on my own observation, there seems to be a law of diminishing returns for people who already have "the basics" -- decent house, vehicle, personal possessions -- and for them additional money sometimes creates as many problems as it solves.

But as I also said, I'm sure if offered a million dollars, I wouldn't turn it down.

    Bookmark   February 2, 2008 at 5:21PM
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Ky114, I wasn't responding to your post, I was making an observation. It appeared to me that ole joyful concluded his poll when he posted the results. Besides, where's the rule that you can only directly respond to the original question?

The key points that I tried to make in my earlier post were:

1. One million dollars isn't that much money
2. Many people should set their goals higher
3. Wealth and happiness are loosely correlated

Others have made some of the same points.

If you want me to directly address your post, I will. I strongly disagree with your statement that money does not buy security. If you want a secure retirement income of $40K to $50K beyond what SS and pensions will provide, you'll need at least $1,000,000 in today's dollars exclusive of the value of your retirement home. You'll need much more if your retirement date is well into the future. I speak from personal observation also. Many of my friends are multi-millionaires nearing retirement.

    Bookmark   February 3, 2008 at 4:49PM
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Depends somewhat on how rich you want to live.

o j

    Bookmark   February 4, 2008 at 8:12AM
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In the studies I have seen, wealth and happiness are only correlated above a certain level of subsistence-- in other words, struggling for money makes you less happy, but having lots and lots doesn't necessarily make you happier than someone who has enough. There is also evidence that it is a question of what's around you-- not falling behind your peers is part of the equation.

Financial security is a wonderful thing, but not everyone calculates the value of their later years by the value of their portfolio. I saw a great book at the library where the author challenges his readers to ensure that their health and family, marital, and social lives are as well-funded as their 401Ks.

While we are supposedly on track to end up with the requisite 1-2 million by the time we reach our middle sixties, we both hope to work part time (even if it's puttering around a nursery) as long as we're able. IMO you do not have to spend at the same rate as a 40 year old to enjoy your later years.

My mom died young (50 years old)-- I am really, really glad she did not put off travel and other goals because she believed she needed a million-dollar portfolio at 65.

Honestly we're lucky to do as well as we do-- our educations took a long time and lots of money, we have three children (anyone care to translate those into a how-happy-are-you dollar figure?) and DH has made a low six figure salary for most of his working life. What about people who have a divorce and have to spread their resources over two households? What about those who just never make more than median income? It is not easy to put away 10K a year when your gross income is 50K. Are those people doomed to misery? I sure hope not.

    Bookmark   February 4, 2008 at 9:17AM
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"What about those who just never make more than median income? It is not easy to put away 10K a year when your gross income is 50K."

I agree.

"Are those people doomed to misery?"

If they can live happily on their Social Security checks, no. If they have higher expectations but little savings, yes. As ole joyful wrote, "it depends on how rich you want to live".

    Bookmark   February 4, 2008 at 1:58PM
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Deerslayer, no, I wouldn't expect many people to agree with me that money and security do not necessarily go together. Obviously thinking they do is pretty much standard logic, but there is nothing I have to add beyond what I said above.

    Bookmark   February 6, 2008 at 1:35PM
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DH and I have a significant amount in liquid assets having recently sold our house. We often wonder just how much money we will need to retire, and at what age that will be possible.

We are both in our 30s. I guess we would like to retire in our 50s, but honestly despite being very close to reaching our first million milestone, I have no idea who to go about making the second! The reason for this is that we made a lot of money in real estate. I have a knack for knowing what to do and when. We made our biggest profit buying in 2006 and selling in late 2007 which kind of bucks the trend a bit.

Now we have moved and I am less familiar with the local market, making me much more wary about continued large real estate profits in this market.

I freely admit that the stock market is a mystery to me. I understand the basics of how it works, but it just seems like legal gambling to me. It's funny because everyone thinks that we are huge risk takers because of what we have done in the real estate market these last years. The thing is that I knew the market so well that the risks didn't seem big to us at all.
Now I don't feel certain of anything. It's frustrating because i feel like we have hit a road block. If we really need 2 million plus to retire comfortably, we had better get on with making it... but now I don't know how.

The good news is that we have no debt. Cars paid off, credit cards paid off at the end of every month. We are renting temporarily right now, so not even a mortgage.

DH is doing stock purchase plan and 401k, and we do save, but it's not going to be enough to make a million dollars within 20 years.

I guess I have to start getting more comfortable with forms of investing which don't involve real estate. Honestly I feel like I could just as well go to Vegas and put it all on red. I'd feel about the same comfort level! : )

    Bookmark   February 6, 2008 at 6:08PM
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If you are planning to purchase a house of similar or greater value with the proceeds from your first home, your million is an illusion! It's best to consider your home as a cost rather than an investment. Homes require maintenance, real estate tax & insurance payments, and if you have a mortgage, generate interest expense. If you don't have a mortgage, homes tie up capital.

Investing in financial instruments is not much of a gamble if you diversify properly. The U.S. stock market has climbed relentlessly since its beginning.

Many of the large mutual fund web sites have excellent investment tutorials for beginning investors. Personally, I like the Fidelity web site. You may also want to start watching CNBC during market hours. It's a good place to learn the jargon of Wall Street. However, I don' recommend that you follow the advice of the gurus. They are wrong as often as they are right.

    Bookmark   February 6, 2008 at 8:11PM
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Hobokenkitchen, using the rule of 72 for compound interest and 20 years doubling time yields a requirement for 3.6% interest compounded (after tax.) In my humble opinion this is hardly difficult to achieve. It would appear that you are well on your way to your goal and are likely to exceed it by a good margin.

    Bookmark   February 6, 2008 at 10:39PM
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"It would appear that you are well on your way to your goal and are likely to exceed it by a good margin."

I agree provided that the sale proceeds are invested rather than used to buy another home. I think that it's very doubtful that home prices will rise significantly in the near future. Some pundits say that home values won't make new highs for 10 or more years.

    Bookmark   February 7, 2008 at 2:12AM
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We will almost certainly invest at least a portion (probably a large portion) in another house for us to live in.
It will have to be a place we will be comfortable living for a while, which is tricky as we have moved on average more than once a year for the past 5 years!

Looking at real estate now - at least in my area - prices are not even close to where they were 10 years ago. Not even close. It will be interesting to see where the market goes in the coming few years. We may stay out of the market for another year or so (unless we find a great deal), but we will not want to stay out of the market for any significant amount of time.

My guess is that we will see a turn around quicker than a ot of people think - unless we go into full scale recession, which does seem like a distinct possibility at the moment. But surely a recession would affect the stock market too? And put inflation through the roof, so a simple high interest account may not be sufficient to keep up with inflation. So then what?

    Bookmark   February 7, 2008 at 10:37AM
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"Looking at real estate now - at least in my area - prices are not even close to where they were 10 years ago."

I was referring to the next ten years not the past ten years. The past ten years included a real estate bubble that was similar to the NASDAQ dot.com bubble. The NASDAQ is currently at about 50% of the high it reached 7 years ago.

I'm not trying to rain on your parade, I'm just trying to introduce some reality.

    Bookmark   February 7, 2008 at 3:01PM
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Greetings Hoboken kitchen (and other rooms to make a home),

A question: do you figure that Exxon-Mobil's about to go broke (or anywhere near it) in the next year or so? five or ten? foreseeable future?

You've done well in real estate ... but as far as putting money to work effectively, that's not the only game in town.

As above, you don't spend your whole life in the kitchen (or it'd be pretty boring) - you like a variety of rooms in your home.

Same idea with effective management of money.

I'm not sure where to find it, but I think it's over on KT, where the topics move downhill much faster than here, but I wrote a thread a while ago that might give an idea of two about how the stock market works. The title way, "Psst! Hey, buddy! Ya wantta buy a dollar for 60 cents?"

There are some aspects of the stock market that have quite a lot in common with Las Vegas ... but many parts that aren't.

You've shown that you know how to handle money.

Best not to keep all of your eggs in one basket ... unless it's the smartest basket in town, very unlikely to drop and break any eggs ... and then you watch it like a hawk!

Rather improbable.

It seems to me that learning about other aspects of how a dollar works are sort of like Mom buying a loaf of bread at the store.

She puts several slices on the table and Junior, coming in famished from an afternoon of running around, tries to stuff a whole slice into his mouth at once.

Doesn't work!

A bite at a time, is the way to go.

Then, a slice at a time.

Even I, who live alone, can go through that loaf that Mom brought home (well, a different loaf - I have a bread machine and my loaf costs under 50 cents rather than $2.00 at the store) in less than a week.

Learning how money works is done a step at time - don't send a kindergarten kid to High School.

Go down to your local library and ask the person in the business or financial section to give you somebasics about how money works, and recommend some resources to start learning about it.

One that you may find interesting, and I hope that you can find enough that's understandablethere that it'll whet your appetite for more rather than frightening you, is the Value Line system of evaluating many U.S. companies.

Library closing - I'm gone.

Good night!

ole joyful

    Bookmark   February 7, 2008 at 8:28PM
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HK, I for one am more positive about the future investment value of RE. It is not the only game in town, but I also would not discount because of the (temporary) downturn we are experiencing. I like the tax benefit of RE that you don't get with equities. I would not want to sell my own residence to fuel my retirement plan, but it is good to consider what/how to buy your own home since you have to pay either rent or mortgage. Of course, one can pay cash, but I usually don't find that a good use of investment money.
The owner occupied mortgage is the cheapest loan I can find. Buying investment property using leverage gives a better return, letting a tenant pay off your mortgage.
I like RE, it is a good time to buy in many areas.

    Bookmark   February 8, 2008 at 1:14PM
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Hoboken kitchen, if you've moved several times in recent years, and may well continue to do so in future, does it make a lot of sense to buy a home? Do you buy and sell each time that you move? If so, the Real Estate people must really love you!

I live a long way from you people and don't know your situation well, but I think that in many areas of the U.S. the real estate market isn't going to be healthy for some time.

There were a lot of those screwy mortgages written, at low currently payable rates over a short term, with the rest of the amount payable related to a regular mortgage rate added to the principal owing, and the interest rate to be renegotiated later. Many felt that they could, with a few dollars, buy a house that would grow by tens of thousands over a short period.

When the time came to renegotiate up from 1-1/2% or so to 5 - 6% ... the folks who'd been able to put only a little down found that there was no way that they could afford the new mortgage, so walked away, or offered the home for sale ... but prices had slipped.

With the distinct possibility of many more homes to hit the market over the next months ... possibly years ... the housing market may not be a pleasant place for some time.

On the other hand, prices have slid in the stock market lately and may well slip some more.

If a recession comes, the Fed will want to reduce interest rates to try to help the market recover ... but the rates are rather low, now.

If interest rates drop, the prices of bonds will rise, so folks who buy them recently may be pleased to see their price rise.

But that'll likely be over the short term only, for the U.S. annual deficits are so high, and the debt so massive, with much of it held by foreign agencies, that soon they'll have to offer higher interest rates in order to entice those agencies to be willig to cover further loans.

Many of them have lost money in the last couple of years, in terms of their own currencies, for the value of the U,.S. Dollar has slid substantially, relative to a number of other currencies.

In some areas of the world, there is discussion of pricing some commodities trading on world markets, specifically oil, in currencies other than the U.S. Dollar, being as its value is dropping.

That's what happens also when governments print a lot more money.

Since the Republicans don't want to have a recession-can tied to their tails in a year of a major election, they'll try to move heaven and earth to have this year a profitable one.

Maybe they'll succeed, possibly partially so.

If you look at the economy in election years, it usually runs quite smoothly, as parties in power don't like to gave the citizenry glum and surly due to a recession in an election year.

My opinion is that it's a good time for some U.S. folks to buy some stocks of quality companies in other areas of the world, especially if they don't own any such at present. Though many may have such exposure even though they're not much aware of it due to owning equity mutual funds, some of whose assets are invested internationally.

Good wishes for being able to manage your affairs well.

ole joyful

    Bookmark   February 9, 2008 at 5:29AM
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I think that ole joyful provides some good advice. The only thing that I take issue with is the notion that the President or Congress can significantly affect the short term economy. They can't. The Fed controls the short term economy by setting interest rates and the money supply. Even an economic stimulus plan will affect the economy with a significant time lag. For instance, the plan that the president will sign next week won't affect the economy until the third quarter. The full effect won't be felt until after the elections.

Changes in the tax code, the cost of entitlements and the amount of deficit spending (things that politicians control) have a much longer lag than a stimulus package. For instance, the huge deficits that accumulated during the JFK - LBJ years were caused by the Vietnam War and LBJ's Great Society program. Nixon, Ford, and Carter inherited the subsequent wage-price spiral set off by the deficits. Nixon tried to get inflation under control with wage-price controls but they didn't work. Inflation finally peaked during the Carter years. Reagan inherited a very weak economy but implemented major tax cuts and inspired people to be proud to be an American. Volker, made a key contribution by reigning in inflation through wise monetary policy. Bush and Clinton didn't do much one way or the other. Clinton took credit for the business boom that Reagan and Volker put in motion. Greenspan kept the economy churning with easy money...maybe too easy. Many people blame Greenspan for the dot.com and real estate bubbles. The economy was chugging along fairly smoothly when the current Bush took office...then came 9/11 and the dot.com bubble popped. Greenspan quickly inflated the money supply to prevent a panic and recession. Bush assisted with tax cuts which also helped reduce the possibility of a recession and boosted the economy over the longer term. The war increased the deficit. Then too many years of easy money resulted in the sub-prime mess and the real estate bubble popped. That brings us to today...

    Bookmark   February 9, 2008 at 1:59PM
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"Hoboken kitchen, if you've moved several times in recent years, and may well continue to do so in future, does it make a lot of sense to buy a home? Do you buy and sell each time that you move? If so, the Real Estate people must really love you! "

I'm a real estate person myself so that helps!! The ones who really love us are at the IRS - we have paid a LOT of capital gains tax! : )
One of the reasons we have moved so much is that I find it hard to resist a real estate 'deal' and being an agent I come across them quite a lot. The last 5 moves were all within one square mile! The other thing is that we started off with a 600 sqft one bedroom and have aggressively worked our way up the property ladder to where we are now.
Now that the market has settled, we would also like to settle down a bit ourselves, so would like to buy something we can live in longer.

Just to add; we do have a small amount of exposure to the stock market:
DH recently enrolled in his company's stock purchase plan to the tune of 10% of his salary, with a buy in 15% below current market rate.
I have an IRA (only about 14k).
DH has a 401k and an IRA roll over with Liberty Mutual.
I also have some shares in England - but only a few thousand pounds worth.

Is that enough? I think we should start doing some of our own investing, maybe using a company like Fidelity.

My income has dropped off significantly because we have just moved and it isn't easy for a realtor to get started in this market in a new location/ state. It may take me quite some time. DH can afford to pay our rent and all our bills and apart from our allocated 'house money', we also have a good savings cushion each. It would mean that he can't really save much apart from the 401k and stock purchase plan though - but our capital 'house' money will be earning interest assuming we leave it in a high interest bearing account.

We went to look at houses again today. We've been outbid on two in the last month. Saw a couple of nice ones, but we're off to check out rentals next weekend and then we'll make a final decision. Thanks for the comments/ tips.

    Bookmark   February 9, 2008 at 7:27PM
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Hi hoboken-seeking-a-house,

You know the real estate market far better than I , but it seems to me that in very many areas of the U.S., this sub-prime mortgage debacle won't sort itself out for a long time.

In the meantime, if house prices fall for a time, I'd not want to be owning one.

What I'd suggest is buying some stocks, mostly with cash from the house that had sold.

The price will go down some, quite likely, but you won't have lenders chasing you, and should one of you get laid off, as happened to another person posting on this forum (who'd bought larger than they could afford, expecting continued increases), you won't be sweating blood, trying to get all the bills paid and the mortgage - or lose the house!

Down the road a while, when things get sorted out, and you've had a better chance to become familiar with the housing market where you now live, I think you'll be in a better position to buy.

Plus, you'll have some equities that may well have fared better than a house might have. You'd have a choice, whether to liquidate them and put cash down on another home, or let them run, taking a larger mortgage but using the stocks as additional collateral, quite likely to increase in value, over a period. I prefer to have at least a five-year time horizon when buying stocks ... ten year is better.

One proviso is that when you have $10,000. worth of reasonable quality stocks, usually the bank doesn't want to lend you more than $5,000. around here.

As I think that you may well have somewhere in the neighbourhood of $100,000. on hand, I think that if I were you I'd be inclined to buy stocks directly, paying commission in and out, but no annual fee, where mutual funds usually charge a purchase or sale fee (that dies if you took the sale end and hold them for half a dozen years or so) - but they usually want about 1/5 of your average growth over the years as management fee.

About 85% of them, despite their claims of such marvellous money management skills, don't manage to outperform the market as a whole.

Even with an asset much smaller than that, I'd be inclined to buy stocks directly.

Make it your business to not only learn about housing ... but money management in general, as well, over the next while.

Do you figure that Exxon-Mobil's about to die over the short term? Or JNJ? Or a couple of dozen others.

Plus, in the light of the U.S. Dollar's value having slipped substantially lately, and likely to continue to do so, how about buying some stock in well-chosen foreign assets? If you'd bought Canadian Dollars about 5 years ago, you could have got one for about 65 - 69 cents ... now it's costing you US$1.00. Had you bought $6,500. worth of Canadian stocks then, given no growth (or allowance for dividends), you could now cash them for $10,000.

Careful, though - a few years ago most people felt that Eastman-Kodak was a money machine! Sometimes technological advances can leave one sitting out in left field, in the rain ... when the ball game is over!

If you put your money into a bank or a bond, first off, there's no long-term possibility for your principal to grow. Two rats eat that kind of cheese - the IRS want to talk to you each year about the income produced ... and, as you know, they want part of it!

If the only money that your principal will ever produce relative to this year is produced now, the second rat goes to work. The first one dealt with your current income. This second one nibbles off a corner of each dollar in guaranteed asset, annually.

If you'd put $10,000. into the bank 20 years ago, it would have bought a decent car - my Dad bought a rather fancy Ford new in 1947 for $1,600. If the bank had paid you the agreed rent on your money in the interim, and you went in to collect your money now, what would you get?

Exactly $10,000. - that won't buy anything like a decent car, now.

So, each year, you must feed the income tax folks, and the rat that eats at your asset ... and you get what's left. Which in recent years, was not much (if anything).

And, know what?

The rats eat first! They always have.

Just some thoughts that you may want to consider.

By the way - if you carry any credit card balances over from month to month - pay 'em off! Regular cards charge 15 - 18% usually, and store-issued cards (wait for it) 25 - 28% annual rate, most of the time.

Not my idea of a good time!

Make money work for you, not against you!

ole joyful

    Bookmark   February 11, 2008 at 3:54AM
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Ole joyful. We have an awful lot more than that in our 'house account' plus about $80,000 in our 'rainy day account'.

No credit card debt or car payments.

We could buy a house cash and if DH gets laid of it doesn't matter much. Our rainy day fund would probably cover at least 2 years of us living exactly as we do now.
If we buy we would probably pick up a fixer upper and add value that way, hopefully off setting a market drop.

That's what happened with our last house which we bought in 2006, renovated and sold a few months ago making approx $250,000 in profit after all costs even though the market had softened considerably over that year. Had the market gone up instead of down we would probably have come out even further ahead, but it's still possible to make money in a down market if you buy sensibly and do exactly the right amount of work to a house.
We made a lot of money on previous projects doing work and the market going up at the same time, but the last was the biggest project we ever did.

My gut tells me that we wouldn't be able to put off the same thing again unless we got very lucky on the house.

There is no way I'm investing all the cash in stocks though. It's too much to risk without understanding that market much better.

The question is do we come out better buying a house outright and living (more or less) for free, but that ties up our cash for an indefinite period. Or are we better off keeping most of the cash, investing some and paying rent which would eat close to 50% of DH's after tax, stock purchase and 401k earnings?
None of this would matter if I was still bringing in the big bucks : ), but it's going to take me time to get established. I may make very little for a couple of years at least.

If we buy a place we have almost all of dh's income to live off very comfortably, but it may not be as wise a finacial move.

It's all very difficult.

    Bookmark   February 11, 2008 at 1:54PM
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"There is no way I'm investing all the cash in stocks though. It's too much to risk without understanding that market much better."

Warren Buffett doesn't invest in businesses that he doesn't understand. I think that's smart.

However, I agree with ole joyful regarding the current stock market. I think that we're close to the type of buying opportunity that occurs about once per decade.

    Bookmark   February 11, 2008 at 5:41PM
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