Stray thoughts on modern finance as it pertains to all the "little people" like me

[Phoebe Loosinhouse]

Real Estate

Real Estate used to be shelter - your house that you lived in because you could afford it. Not an "investment" that you would "flip" every couple of years to in order to harvest the equity. People got a single mortgage and they concentrated on paying it off and had a party or ceremony when they did, as they, and not the lender, now truly owned the house free and clear. They stayed in the same property for years and years. Look at some of your older neighborhoods where the same inhabitants have lived for decades.

The fact that they had stable employment and were able to work in the same area for the same employer was also a factor in this stability.

If you "invested" in real estate, that meant that somehow you were able to buy an additional property, usually with at least 20% down and you paid a higher rate as it was an investment property and not a principle residence. The theory of investing in real estate was aspiring for a positive cash flow from the rents and having someone else pay down the mortgage and create equity for you. Again, "flipping" was not the be all and end all because the rate of annual appreciation was so much lower.

Flipping = Speculation and a reliance that the tide is always rising and will never go out. "Flipping" is not "investing". It's no different than someone who "churns" stocks. When the churners get into a particular stock it rises until it bursts and then someone else is left holding the bag.

STOCKS
People pretty much owned stock in the company they worked as part of employee stock purchase plans. It gave them a source of pride and ownership in their own company. They also could count on a fixed benefit (pension) in many many places.

The fixed benefit is gone with the wind, replaced by the 401K. Someone, somewhere,somehow, decided that the American public had to be forced into the stock market whether they liked it or not. I have seen the crappiest assortment of stocks you can imagine in some companies 401K's because a clueless upper management was sold a bill of goods by some investment adviser who recommended funds based on how much he and his company would make managing the 401K and not how would the employees benefit.

Do you remember when companies had payroll savings plans that invested in Savings Bonds? The US stock market has actually been flat for a decade and we just lost most of the gains in the S&P in that time. Most people would have been better off if they HAD just purchased safe, boring CD's or savings bonds and re-invested the interest.

Suzy Orzman said something that has been re-verberating in my brain for some time now. When asked how much money she had in the stock market she said something like 5% or 10% and the remainder she kept in tax-free municipal bonds. This is what most people would call ultra-conservative.

And yet, am I wrong? Every single financial article I read anywhere advises to have anywhere from HALF or MORE of your accumulated savings in stocks and that they will ALWAYS be the best investment in the long term. Is that correct? Are stocks really the best and safest place for Americans to store their precious acorns?

I wouldn't be so down on the stock market if I thought that my dollars were truly being "invested" by the companies into better products, innovations, community involvement,a well-compensated stable employee base, and some nice dividends back to me, who after all, is footing the bill.

Instead what I see are companies that game every system they can, scream for de-regulation so they can either poison us or rip us off, outsource their labor force to third world sweat shops, and siphon off all the funds in the cookie jar to their overpaid, bloated CEO's and Boards of Directors. They might trickle back a teensey, beensy bit to me, the person who pays for all this.

It does seem as though both the real estate market and the stock market are unraveling their make believe equities at the same time, which is dreadful. I really believe one is necessary to prop up the other or it's back to the olden days of a house as a home and investments as savings.

[DangerDave921]

1. Houses

My family is going to stay in our house for many years to come. We could sell it now and make a hefty $150,000 profit from when we bought it a few years ago, but where would we go? All the housing prices have gone up around us too. Unless you're ready to retire to some small town somewhere, you can't really sell and make a profit.

[Phoebe Loosinhouse]

3. And how did everyone in America suddenly become able to afford 300K-500K

For a house,when real wages have stagnated and the cost of EVERYTHING, food, utilities, insurance, property taxes, etc. have sky-rocketed? Something is just not computing.

[DangerDave921]

6. here's how

There are a couple reasons how people can "afford" these expensive houses. First is that couples are much more likely nowadays to have two-income families instead of a parent staying home to raise the kids. So there are two salaries. And second, people are buying houses that are way over their heads and that they can't really afford. Look at all the foreclosures going on. People thought the rates would stay low, that prices would skyrocket, and that they could manage the mortgage. Ooops. Those adjustable rates went up and people were faced with debt.

I don't think the real estate market is a scam. But you have to watch what you're doing. If your broker tells you that you're approved for a $300,000 mortgage but you're only making $30,000 a year, watch out buddy! Just because you're approved does not mean you can afford it.

[MissB]

11. Some people bought a house when prices were really low.

That's what we've done. Dh bought our first house in the late 80's for $55k. We sold it for $365k and bought the cheapest house in another neighborhood. It works for us - we saddled ourselves with a slightly bigger mortgage, but we can afford it even if dh lost his job and had to go to work flipping burgers.

I scratch my head at the couple who bought our former house when it resold again last year. They paid $480k for it. I guess they were coming from San Fransisco, so the housing prices in Portland probably seemed like a great deal.

[Mr Rabble]

2. Alright, stop using common sense.

I was just kidding of course.

You are absolutely correct in your assessment. The stock market as a source of revenue, at least for normal working people like us, is a total joke.

Both the housing and stock markets wild fluctuations are carefully designed and implemented plans to fleece people out of their hard earned money.

Great post.

[a kennedy]

4. and wasn't putting some of the SS monies into the market a

possible fix to the SS problem??? Oh yeah, that's just what we need, people first off who don't know how to invest, and if they do put some of their $$ in the market this is what they possibly could get for their effort, HUGE LOSSES that'll take years to get back. :eyes:

[glowing]

5. Most people want a home and a little piece of dirt to call their own.

Using property as a tool to receive finacial gains is something that should be reserved for developing companies....Which is the reason why many states have a policy about staying in the home for at least a year before selling. Money made on the stock market should be the best investment... but that is so globalized now. Without fair market trade, we screw ourselves. We allow for the dollar to deflate in value. It could be the long term plan to help force the Amero, I don't know (there's been a lot of spculation on that one). If we had an honest president, we would be looking at expanding our resources here in America to build sound infrastructure that makes sence, i.e. fast bullet trains, city transportation that works (similar to a European rail system... it is so amazing how you can get around there without a car--so easy). A sound investment in renewable energy sources that can revitalize our technology sector and push foward on innovation for the rest of the world.... It would be easy to recover by heading in these directions, but it won't happen if we spend every last dime on Iraq and poss. Iran and continue the days of no-bid contracts.

On top of that, we need to change our whole food based models... Monsanto engineering of our foods needs to be thrown out. We need to go back to smaller farmer family based sources...they are less likely to screw the hell out of us because they have pride in goodness, quality, and a name. I would love to start a small farm... I could not compete against the big farming machines... I couldn't even afford the land where I live. Also, we need to promote hemp farming---paper-goods, clothes, and other variable products need to be sought.. Its easy to grow, and saves from cutting down every last tree in the world. And I dare anyone to smoke it (good luck on that one).

[Phoebe Loosinhouse]

7. Americans seem clueless about the fact that much of the rest of the world doesn't WANT our food

due to hormones, antibiotics, genetic engineering , mad cow and the like. In some ways, our food imports are viewed the way Americans are currently looking at Chinese imports with such skepticism - "What the hell have you done to that cow, anyway?"

The Europeans are lucky that they have true regulation that is designed to protect their people.

[Phoebe Loosinhouse]

8. after today's roller coaster in the stock market it became clear to me

how risk adverse I have become.

I had personal fallout when the S&Ls failed in the eighties.

I lost a meager hoard in the tech crash of the late nineties

I thought I was well on my way to losing my recouped not as meagre hoard today. I am going to follow my own advice and get out of stocks until I feel that the balance between company assets/employees/stockholders/and gluttinous upper management has been restored to some kind of sanity.

Until then, I will put everything in Beanie Babies!!!!

[nosillies]

9. Great post, thanks

I can hardly remember the days when people stayed in one home. When I was growing up, we started in the teeniest little house. It was way too small for a family. So when my folks finally had a little money to spare, we did move to a bigger home. But that was about it.

For my husband and me, being able to stay in one place is a pipe dream. The terrible wages in his industry mean we're often having to move around so that he can have a decent job. Therefore, we're caught in a bad spot -- we only want a home as a shelter for our family, but we've at times been stuck buying and selling on a flipper's time frame. And we never seem to be lucky enough to buy low and sell high. We get relocated at bad times and get screwed.

As for 401Ks -- what are those? Are those the accounts where people put their extra money? I wouldn't know. We've never really had much extra money. Investing is something I hope we can do in maybe ten years or so. There is no acorn for our family at all, probably never will be -- and I'm sure there are millions more families like mine.

To me, the people who have been flipping real estate and day trading and all that other shit are no better than idiots who buy into Ponzi schemes or those dumbasses who truly believe they can be professional gamblers. Yeah, a few of them will get rich, but most of them will lose their pants, and unfortunately, take others down with them in the process.

I may sound like I'm on a moral high horse, but I have zero respect for anyone who enters into any endeavor with the sole purpose of getting rich quick. This may be really simplifying things, but I think that attitude is one of the major things wrong with our country and economy today. If everyone would just work hard, but not too hard, and not step on those below them as they moved up, then we wouldn't have this mess.

[Phoebe Loosinhouse]

10. Sometimes it is really better to rent than to buy

If you are being sent someplace and you're not sure how long you will be there, then for Heaven's sake - rent! You won't have closing costs, points, etc. and you'll have alot more flexibility. Generally speaking, in "normal" markets, it usually takes 3-5 years to sell without a loss ( not taking into consideration tax considerations)

"401K" is the name that is given to retirement accounts that are (usually) part employee funded and part employer funded, although there are 401K's that don't have an employer contribution or it may be very small. You contribute pre-tax dollars our of your wage or salary. It is put in a special account that you are not able to draw from until you are retirement age (59 1/2 I think). You decide how these dollars are invested according to the way your employer's plan is drawn up. A good plan gives you lots of choices as to where you want to put your savings - S&P index funds, money market, tbills, small-cap, value, growth, etc. so that you can create an account that reflects your particular risk profile. Most employers also contribute some amount to your 401K - they might match the first 6% of your salary that you put in , for instance. Many employers put this "match" in company stock. On the face of it , a 401K designed like that would be a great investment - an employer match of the first 6% means that you realized 100% on those dollars immediately -this is what is referred to as "free" money. You have to look long and hard to find an investment that pays 100% right away ( note - this part is usually subject to "vesting". You always are entitled to whatever you personally invested, minus any plus or gains in the marketplace, but usually you have to wait a bit until the employer match "vests", or becomes your dollars forever. If you employer match has not vested and you leave that employer, that money goes back to them.

Usually, if you work for an employer who offers a 401K, it is worth your while to make even a small, regular contribution to it. It will grow appreciably larger without you noticing. In the rare case of 401ks with no employer contribution - I would say screw it and just put the money ina an IRA where you have control over exactly which funds you are placing money in. A 401K with a teensy employer contribution or crappy choices speaks volumes about that particular employer. If their 401K is crappy, I bet their internal financial are just as crappy.