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. In other words, we continue to see weak returns on our investments. Each generation needs to find a more reliable investment vehicle.
In an article 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 most significant number of Baby Boomers globally, this is not just an American phenomenon. In an article titled ” 10 Rapidly Aging Countries, ” Emily Brandon writes,” 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 close to 13200, the TSX 8700 in October 2019 Dow average of over 26,700, and the TSX of approximately 16,300.
Many of the first waves 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 aging Boomers work at Wal-Mart and McDonald’s?
How many stories have you heard about wiped-out or underfunded pension funds? Governments worldwide 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 and 1980, and millennials were born between 1981 and 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 investment returns.
Watch the Naysayers
Barnes lists the Top 10 Investments for Baby Boomers in his article. Many Boomers must 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. However, Barnes does not give investment real estate the due it is worth; the principal paydown on an average mortgage provides a much higher return rate on your initial down payment than a mere 2%.
Eye Opener – Return on Your Original Home’s Down Payment
Your mortgage statement is broken into two primary numbers; your annualized interest payments and principal pay down. The principal paydown on an average mortgage provides an interest rate of return unlike any other financial investment.
Once you know your principal paydown amount, divide it by your initial down payment, and you can calculate your return rate. (Example; the purchase price of investment real estate is $200,000; 20% downpayment amount to $40,000, and the principal payment pays 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; above all, consider ten years’ impact. The beautiful thing about paying down your mortgage year after year; is that more of your payment goes to the principal paydown, which increases your yearly rate of return.
Looking 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.
The time is Now for Investment Real Estate in Your Financial Foundation
With the youngest Boomer turning 57 in 2021, crunch time is just off on the horizon. Similarly, a large enough window exists to take advantage of some great positive cash flow opportunities.
Above all, what type of returns do you want?