Where Do You Go Now?

I have to admit, as I consider what to do next in terms of investing, it is a little bit daunting. I think that this is the case for most people. The markets continue to be rather soft in terms of stocks and real estate due to many factors, one of which seems to be the Sub Prime lending fiasco. But in the end, people have to look for investments for their money.

Savings Accounts Are History

Savings account rates have taken a hit. ING Direct’s interest rate is back down to about 4.3% APY from 4.5% and the interest rates seem to be coming down. Most of this is anticipated and is therefore factored in to the markets already to some degree, I think. And if that is the case and the market continues to go somewhat sideways over the medium term, it certainly begs questions with regard to the 1-2 year timeframe.

Retirement investing is entirely different than investing for the short or medium term. And the amount and type of funds being invested also make a big difference when deciding if/when/how to invest.

Real Estate Reality

All of those caveats being given however, many people see real estate as a great play right now. In fact someone I know actually wondered whether or not it might make sense to just buy a little bit of land right now if the prices are so depressed and then just sit on it and pay the real estate taxes on it. As always, it depends on the situation. However, for the majority of the people, I really don’t have a good feeling about real estate as an investment vehicle for amateurs at this point.

Like any investment, I really feel like you should truly understand it. Understanding an investment means being completely aware of the downside and the liabilities that might be associated with it (it isn’t always the total sum of money) and then make a decision accordingly. In the end, I feel like for many amateurs (like myself) , the situation is still too rocky for real estate.

The unfortunate thing is that there are many, many, millionaire gurus who tout the power of real estate as a wealth building machine. And it is. I simply cannot deny that. However, it is a wealth-building machine for people who know how to do it. And the fact of the matter is that I don’t know how to do it. Real estate as an asset class may be undervalued at this time, however.

How to Build Wealth

Much wealth comes from the opportunity presented when a valuable asset can be acquired at a significant discount, then held for a period of time, and finally sold at a tidy profit. Real estate may be just such an asset at this time due to the situation with the subprime mortgage crisis. However, it may not be such an asset. If you’re an amateur like me, you don’t know. All I know for sure, is that it bears careful monitoring.

If you are more comfortable with stocks than with Real Estate there are many stocks that you could buy. And if individual stocks are not of interest to you, then you could buy a good mutual fund which includes some diversification or even invests in additional asset classes like REITs or Real Estate Investment Trusts which are like buying a stock of a company that invests in real estate.

The Take Away
The takeaway is that you should continue investing if your goals are medium or long term. Nothing that happens in the short term should deter you from your long term goals and executing on a methodical plan to invest in assets and markets that you understand and think will make money for you.

In the end, I feel that the most dangerous thing is to make a drastic change or decision about investing without really being careful and planning it out beforehand, before major market shifts occur.