The recent economic turmoil in global markets has show how volatile the financial world can be. This volatility tends to increase dramatically during a global disaster or unexpected situation. During this time, it is easy to be concerned and wary of investing. However, there are several tips that should be followed that could help you to manage your personal concerns while also being a prudent investor during these challenging times.
Allocate Based on Time Until Goal Deadline
One tip that should always be followed when you are saving for a long-term goal, such as retirement or paying for a child’s education, is to manage your asset allocation based on the time until the goal deadline. If your goal is to prepare for retirement and you still have multiple decades until this date comes, you can be more aggressive and invest more heavily in stocks. However, if you are less than a decade away, more of your funds should be in low-risk bods. This will ensure you do not see your portfolio wiped out during a period of intense volatility.
Do Not Panic Sell
One of the biggest mistakes that people make during a period of turmoil is selling their assets too soon. When the market drops several days in a row and things appear rough, many people will end up selling to avoid further losses. However, when you do this, you are bound to miss out on the gains that follow a decline. While it comes with stress, you should avoid trying to time the market.
Continue to Buy
When the markets are declining, you should consider this to actually be an opportunity. In many cases, the value of the company that you are buying into will be much higher than the market capitalization during a recession. These declined stock prices will allow you to buy more shares, which eventually should increase back up in value.
Take Advantage of Recession Benefits
While there are a lot of challenges that come with recessions, there are some economic advantages as well. During a recession, you will often see a reduction in interest rates and prices on consumer goods. At this time, you should look to refinance your mortgage or see if you can get a good deal on the purchase of a car, electronics or furniture. Due to decreased demand, there are often great promotions that will save you a lot of money.
Month: December 2020
To buy or not to buy a house – it is one of the most pressing questions for many Americans today when the economy seems to be so vulnerable and unstable. There are a lot of potential homebuyers who have been saving for years to purchase a house but are suddenly wondering if it will be better to keep renting instead of buying a home. If you are one of them and you are struggling to make a decision, this article is for you. Let’s discuss when renting is a better idea than purchasing
Maximum Flexibility is What You Want
No one knows what the future holds for you, so it is important to stay flexible. If you are not sure how long you are going to stay in one place or you are searching for a job that might require you to move, then it is better to postpone your buying decision and keep renting. You might also decide to rent instead of buying if the economy in your current state or town is not clear. It is better to wait a little bit and see how the economic situation unfolds before investing money in a certain area.
You do Not Want to Lose Money
If you buy a house and then decide to sell it after couple of years, then you should be ready to lose money. To show you what we mean, here is an example. Let’s say you purchased a house in Miami for $200,000 and assume it appreciates about 5% in value. So you decide to sell it for $210,000. Unfortunately, you will not be able to receive the whole amount after the sale transaction because there are some closing costs you have to pay. They include a broker commission (about 5%), City Real Estate and State Transfer Tax, and some other closing fees. It total, it will be about 7% of the purchase price of the house, which is almost $15,000 in our case. So even if you are lucky enough to sell your house for $10,000 more than you purchased it for, you will lose $15,000. If you do not want to lose this amount, then renting is your best option for now.
We understand that buying a house is a serious life decision, especially today. Therefore, we recommend you to consider all the pros and cons, and ask yourself the following questions:
- Are you planning to stay in this neighborhood, town, or state, or would you consider relocating in the future?
- Do you feel stable and safe enough to commit to a 30-year mortgage?
- Will you be able to sell this home without losing a lot of money?