(Part 1 of 3)
Balance in one's portfolio, as in life, is often easier said than accomplished. Questions arise that include:
1) Is real estate safe? If so, when, what, where, how and why should I buy?
2) Is the stock market safe? Again…when, what and why should I buy and for how long?
3) How do I keep balanced in my stock and real estate portfolio?
These, and many others, are questions we ask ourselves as investors on a daily basis. Many of us may have had too much of one thing at one point in time, whether it was tech stocks in the late 90’s or real estate in 2006 through 2008 or now in 2010 with commercial property.
Many analysts have very complicated spreadsheets and graphs predicting what may happen or not happen in the future and based on these, investors must make hard decisions on what to do, how to proceed and what purchases they should make. There is no real crystal ball that is 100% accurate. If there was, I would not be writing this article, if you know what I mean!
One thing I have learned through my years of lending experience and course work on economics, lending and finance is something titled “The Four Cycles of Real Estate” which, based on my experience, repeats every 10 years or so and is applicable to investing in the stock market as well.
For real estate, every 10 or so years, each geographic area throughout the United States experiences a full circle, moving from a recessionary market (that we have experienced over the last 2 years) to a recovery market to a growth market to an oversupply market. It appears that each cycle lasts between 2 to 2.5 years but can vary from area to area. Based on my experience, an investor of real estate would should buy in the recessionary period when prices are low and sell in a growth market when prices are high. This application could be used with the stock market as well. Buy the stock (after researching it) when the stock is low and no one wants it and sell when everyone is buying it or when the stock is high.
With this model, you might not see the peak or the high point of real estate or stock prices but you certainly won’t see the low point either as so many investors experienced in 2001 and 2008 if they held on to the investment and had to sell. In summary, it seems that one of the major keys to creating balance while providing a good return on investment is when you buy and when you sell and in the case of real estate buying in the recessionary period, holding in the recovery period, selling in the growth period, staying in cash in the oversupply period and then buying again in the recessionary period.
In relationship to what, where and why to buy, on Thursday 2/25/10 I will provide part 2 and explain the “what and why” part and on Thursday 3/4/10 I will explain the “where” part.
If you have any questions on the above or would like to determine your purchasing power and financing options for a home purchase or investment property in the future, please contact me.
All the Best,
Rob McCarthy
Owner and Senior Mortgage Planner - 101 Loan
www.101loan.com
Email Me
408-377-4123 Office
408-558-1422 (Renee Steff) Sr. Loan Coordinator
408-608-1921 Fax
CA Dept.of Real Estate - License # 01165697
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