The Housing Crisis and Your Savings
September 2, 2008
By Kevin Cafferty
The housing bubble had another perverse effect on our planning: It led us to save less. "Many people thought, 'I'm wealthier, I already have a big chunk of my nest egg thanks to my house, so I don't have to save as much,' " says Moody's Economy.com chief economist Mark Zandi.
The above quote is from this article on how the housing crisis is affecting people's retirements. The article makes some good points about saving and investing - most notably that if something is the "hot" new investment, like tech stocks were in the 90's, then it is a bubble likely to burst.
We all want to imagine a quick, easy way to get a huge return on our investment - but as the article says: Big bets on the investment du jour are more often a recipe for downsizing your wealth than growing it.
It's not as exciting, but the truth is people should have a portion of their savings in "safer" investments: like CDs and High-Yield Savings accounts. Accounts that are FDIC-insured and still collect interest, but are also in little to no danger of going anywhere if there is a crash.
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Comments
On
Friday, September 05, 2008
Anonymous
wrote:
I also noticed that whenever an investment is considered "hot" and some big investment bank analysts comes out with prediction about its price taking off, it will immediately fall right afterward. I remember during the dotcom days in 2000, when Qualcomm (remember that company) was the hot stock du jour. The stock was already at ~$400/share and some analyst came out with prediction that it will go to $1000. A few days later, it was down to $200 and even less.
Look at oil prices. Oil was at $140 a few weeks ago until some hot shot analyst predicted it will skyrocket to close to $200. Look at oil price now.
I guess the wise strategy is to do whatever is opposite the Wall St. establishment is predicting.
CD's certainly seem like the wise bet these days. Nobody on Wall St. seems to be pushing it.
On
Wednesday, September 03, 2008
Andrew
wrote:
I agree. Another thing about "hot" investments is that their popularity implies it's a little late to be buying in -- the price has already gotten inflated.
One nice thing I like about more stable investments such as CDs is that I can make definite plans for the future. I know how often I set aside money and what rate it's growing at. So I know exactly which month in the future I'll reach my goal. Can't be so definite about hot investments.
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