By: Eric Tyson
If you listen to the pundits and experts in the news, you might think it’s best to hunker down in 2009 and hold on to your cash
If you’re like most folks, you’re entering 2009 clutching your wallet, keeping an anxious eye on your stock portfolio, and bracing yourself for the next dose of economic bad news that’s surely coming down the pike. Yes, if you believe everything you hear and read, we’re heading straight for financial apocalypse. But what if you decided to opt out of the doom & gloom club? What if, instead, you decided to look for treasure hidden amid the ruins? Choose the latter approach in 2009, says financial expert Eric Tyson, and you’ll open yourself up to some great investment opportunities. Unfortunately, most often, you can find only the worst-case scenario in the nightly news. That’s because bad news sells. What you aren’t hearing or seeing is that 2009 will bring some great investment opportunities in two areas you might not expect—real estate and the stock market. You simply need to change your perspective a bit.” In other words, by taking an optimistic investing approach during the upcoming year, you can actually profit from the sluggish economy. Tyson explains how:
Take advantage of low prices…Instead of looking at deflated housing and stock values as a bad thing, look at them as opportunity makers. Because prices have fallen, these investments are more affordable and you can buy now and watch current values increase over time. Take real estate, for example. Recent data out from the National Association of Realtors (NAR) shows that their home affordability index (HAI) is at the best level in more than three decades. The current HAI value of 141.8 means that a family earning the national median family income has 141.8 percent of the income necessary to qualify for a conventional loan covering 80-percent of a median-priced existing single-family home. So if you have good credit and can put down at least 10-20 percent of the price, investing in real estate is actually more viable an investment than it has been in years.
“The same is true of stock prices,” says Tyson. “Because of the downturn, many strong companies have stocks that are undervalued. If you buy these stocks now, as the market stabilizes and things improve, values will increase and your portfolio will be the benefactor.”
…But look before you leap. In other words, do your due diligence before you plunk down the cash, says Tyson. Some companies’ stocks are low for a reason. Before choosing which companies you would like to invest in, you have to do the research and make sure that they are fundamentally strong. Where real estate is concerned, there are still areas where properties are overvalued—parts of the Pacific Northwest, for example—so you’ll have to do the research to make sure you buy in an area where prices have already fallen in line with market fundamentals.
“These caveats are just reminders that you shouldn’t go into any investment without doing your homework first,” says Tyson. “Making irresponsible investment decisions is what created the problems we are having. By researching your options, you will be able to make sounder, more profitable decisions.”
Keep thinking long-term. If you make investments thinking you are going to see quick returns, you will be disappointed. What you can do is buy property now—particularly in areas where it’s now properly valued and even undervalued—and watch its value accrue over time as the market stabilizes and improves. You should take the same approach to any stock investments you make.
“It’s true that 2008 was a sobering year,” admits Tyson. “And now we hear from many pundits and experts that the upcoming one could be as bad or even worse. But if you invest calmly and rationally, rather than reacting emotionally, 2009 can be remembered as the year you made some smart, long-term financial decisions. I think if you take advantage of what’s going on in the real estate and stock markets right now, you could be setting yourself up for a very profitable future.”
Eric Tyson, MBA, author of Investing For Dummies, 5th Edition (Wiley, 2008, ISBN: 978-0-470-28965-5. For information visit: www.erictyson.com.