According to several recent studies the younger generation today would rather rent than own their home. True, the recession has done a number on their job opportunities. Plus, many are busy paying down debt and working hard to make themselves ready to own one day. But unfortunately we all know tougher mortgage credit requirements are eliminating “too many” good, potential home buyers.
What’s alarming is that a greater number that can buy are simply choosing to rent. And the main reason… well, you guessed it: they are saying that they aren’t ready to settle down. They possess a strong desire to travel and explore before they get more “serious” with life.
So what’s the concern? Well, a couple things come to mind. First, the obvious negative effects on our economy from less Americans owning homes. Second, if this group chooses to rent for a long period of time before they purchase a home their personal wealth could suffer long-term. With the time-value of money principles working against them and delaying this traditionally effective form of saving (building equity) through home ownership at young ages, some of this generation may never replenish the cost of such a delay.
Considering the most recent and possible trends, we want to update you on our position and how we see things going forward.
With the recent downgrade of U.S. debt, the political gridlock in Washington, continued deleveraging of global debt, particularly in Europe, and heightened consumer fears – it is possible that our economy could experience increased headwinds for some time. This could translate into slow to possibly even no growth, and continued volatile stock and bond markets. Therefore generally speaking we are tending to think a little more defensive going forward.
At this point in time we are hearing that the markets are “very oversold” meaning that we could see market rallies. If these happen, it is possible that they could be short-lived. So during any better times in the market, windows of opportunity could prove optimum times to make defensive adjustments, if needed.
Please understand we aren’t suggesting investors “run for the door,” so to speak. This reactive, fear-driven type of strategy often proves futile in the long run. Diversification studies show us that there will be asset classes that trend better for investors over others during specific periods of time.Also, we are hearing there are “pockets” of increased economic growth in certain “developing” areas of the world that is contrary to what we are seeing in the U.S. This being the case we will do our best to help clients sort through these facts to make wise investment decisions for their situation.
What you can do in the meantime…
- Stay calm and don’t panic. Remember, panic is not a strategy. It is a reaction. Be very careful how you are reading things, and try to be objective in order that you can make better decisions for your situation. It’s sad, but in times like these we hear and see new prognosticators that will try to predict “exactly” how things will turn out. No one can do this accurately every time! Also, friends and others will tell you what they are doing. Remember everyone’s situation is different (income, debt, goals, risk tolerances, background, family, etc.). So try not to “follow the leader” – it’s best to review your situation independently.
- Don’t do something emotional and stupid. In times like these advisors see clients do irrational things. You should already have a plan in place, and it’s important to remember that the plan is there for a reason – to help you stay on course. Making knee-jerk reactions can lock in losses (sometimes at significantly lower prices), and even have other consequences such as tax penalties, income or capital gains tax, and increased trading costs. In volatile situations people can feel overwhelmed, so it’s usually best to seek “wise, professional counsel”.
- Continue your 401-k and other retirement savings. Believe it or not, in times like these some people stop contributing to their retirement plan with the excuse that they don’t want to “throw good money away”.Remember these times – the market lows – are often the best times to continue buying. You could be getting more shares at lower prices while also continuing to reap the tax benefits associated with qualified retirement plans. It’s often what seems contrary or even wrong today that may benefit you the most in the longer-term.
- Re-assess your debt situation. It’s a good thing to pay down debt, especially higher interest rate debt. A good way to do this is to look for expenses you can reduce or cut out. Control emotional, impulsive buying decisions as you manage your spending plan. Also, consider the costs and benefits of driving your vehicles longer. Then take these savings and plow them right back into reducing your debt on a monthly basis.
It could also benefit you to refinance at today’s lower mortgage rates. We have recently heard rates are as low as 3.25% on a traditional 15-year loan, and 4.25% a 30-year fixed mortgage. Sometimes moving quickly and refinancing at reduced rates can allow you to use these savings to pay off your mortgage sooner. Also consider the advantages of reducing the term on your mortgage, such as reducing a 30-year to a 15-year period for more significant interest cost savings.
We will frequently review our “view of things” going forward and willperiodically note pertinent issues through our emails and blog – so please “like” us on Facebook or sign up for our Blog to receive ongoing updates.
In closing, during these more difficult times we will work hard to help sort through all the “noise” out there in order to help you make the right decisions for your situation.
Almost everyone I talk with, from young to old, seems to be worried about their future. Whether their fears have been heightened due to the economy, the stock market, or the political climate, their concerns usually center on “will I have enough” to retire. In other words, “What if I can’t work as long as I need to?” or “If I want to stop at some reasonable age, will I be able to?” So let’s review over the next several weeks what may help. With each entry we’ll try to address a strategy or “hot topic” that may be helpful.
Live Reasonably. Good marketers have done an excellent job motivating us to want more and more. But the truth is we can’t afford many things we spend our money on. So look at what you are spending (make a detailed list) and then ask yourself what kind of lifestyle you can afford, not just today but later. Next, start finding ways to spend less and save more. Remember, bad habits are hard to break. Reducing spending is almost like pulling apart human flesh. So don’t wait too long to start re-establishing good spending and savings habits. To develop & monitor your spending plan, consider using Quicken or the Mvelope System. And if it helps any, remember that most of the “rich” can’t afford the “yester-years” any more than the rest!