Two Major Economic Downturns in the last 10 Years; The Consequences
With two significant economic downturns in the past decade, all generations have taken a beating on their financial investments, and we continue to see weak returns on our investments. Each generation needs to find a more reliable investment vehicle.
In an article written by Ryan Barnes, titled “Top 10 Investments for Baby Boomers.”
http://www.investopedia.com/articles/retirement/08/investments-for-baby-boomers.asp Ryan opens his report, stating, ” The official first baby boomer started collecting Social Security payments in late 2007, beginning a long and powerful wave of boomers reaching retirement age. (Boomers are the generation born between 1945 and 1964)
Even though the United States has the largest number of Baby Boomers in the world, this is not just an American phenomenon. Emily Brandon writes in an article titled, ” 10 Rapidly Aging Countries,” nine other nations have a higher proportion of senior citizens than the U.S.; one of which is Canada.
Did you notice this first flight of Boomers turning 65 in 2007 happened at the same time as a significant economic downtown turn in the USA and the world?
At the end of 2007, the Dow Jones was around 13200, and the TSX was just over 8700; compared today’s current Dow average over 26,700 and the TSX at over 16,300. (October 2019)
A lot of the first wave of Boomers saw their investments disappear overnight just when they needed to draw from their finances, and here we are 12 years later, and golden age dreams dashed.
Have you noticed how many ageing Boomers are working at Wal-Mart and McDonald’s?
How many stories have you heard about pension funds wiped out or underfunded? Governments from around the world had to step in with legislation to prop these pension funds.
Lessons to be Learned from the Boomer Generation
Generation Xers were born between 1965 to 1980 and Millenials born between the years 1981-2000.
Boomers are a generation that saw double-digit mortgage rates and double-digit interest rate returns on investments. Double-digit mortgage rates are long gone, and for the average investor, so has the double-digit pace of returns on investments.
In Barnes’s article, he goes on to list the Top 10 Investments for Baby Boomers. Now many of these Boomers are having to take Barne’s advice on low-interest-rate investments to fund their retirement. Barnes has U.S. Treasuries at the top of his list, and over the last couple of years, the average U.S. Treasury investor has seen a return of just over 2%.
Barnes puts Real Estate Investment near the bottom of his list. Barnes does not give investment real estate the due it is worth; the principal pay down on an average mortgage provides you with a much higher rate of return on your initial down payment than a mere 2%.
Eye Opener – Return on Your Original Home’s Down Payment
When you examine your mortgage statement, it is broken out into two primary numbers; your annualized interest payments and principal pay down. The principal pay down on an average mortgage provides you with an interest rate of return, unlike any other financial investments. Once you know your principal paydown amount divide it by your initial down payment, you can calculate your rate of return. (Example; the purchase price of investment real estate $200,000; 20% downpayment amount $40,000 and principal payment pay down the first year on a 25 year amortization using a 3.04% mortgage interest paid monthly. The principal paydown amount is $5439.85 divided by an initial down payment of $40,000; the rate of return as a percentage is 13.59%.) This is just looking at year one’s performance; think about the impact of ten years. The beautiful thing about paying down your mortgage year after year; is each year more of your payment goes to the principal pay down, and this increases your yearly rate of return.
If you look at the 10-year chart of the Dow Jones stock index starting January 2006 and carrying through to August 2016, you will find throughout the past ten years; this equals only a 4.61% annual return.
Think about what having investment real estate as a portion of your financial portfolio would mean to the health of your returns.
Time is Now for Investment Real Estate in Your Financial Foundation
With the youngest Boomer turning 55 in 2019, crunch time is just off on the horizon, but there is a large enough window to take advantage of some great positive cash flow opportunities.
What type of returns do you want?