The past few weeks of the stock market performance has been worrisome. The last 48 hours have been gut wrenching. All stocks and crypto’s have been crashing down to pre-COVID levels or even lower. Tech companies have fared the worst by far, including Fin-Tech. In the past 2 months, my investment portfolio decreased by $40,000. While all of this is happening, my net worth has remained the same. How?
Real Estate & Cars. The values of real estate and cars have increased just as fast as the stock market and crypto dropped. This is the perfect example to explain why it is important to diversify your investments across different asset classes.
Theory: Why the Stock Market is Crashing
I believe a big part of the stock market crash has to do with a mix of the following four factors.
1. Living on unemployment checks is catching up to the unemployed that refuse to go back to work.
2. Many who quit their jobs to start their own business are pulling money from their investments to stay afloat or re-invest into their business.
3. The cost of living and the cost of goods have risen significantly over the past two months. Some has to do with the Russian Ukrainian war, but most of it has to do with inflation and the Federal Reserve printing money.
4. Thousands of people are selling off to jump into real estate. The rising interest rates are giving people FOMO (Fear of Missing Out) in the real estate space.
Let’s talk about #4 Real Estate and what Dave Ramsey says about buying a home.
Dave Ramsey Says:
- Buy A House When You Are Debt-Free – This is where I agree with Dave. When lenders look at your debt and income, they typically want your debt payments (including your new mortgage) to be less than 35% of your monthly income. Paying off your debt first will increase your likelihood of getting approved and it will prove to yourself that you are ready for the long term responsibility of paying for a house.
- Buy A House When You Can Make A 10%-20% Down Payment – As I mentioned, I would go straight to the 20% minimum downpayment. PMI can be hundreds of dollars per month. PMI does not benefit you in any way. It only exists to protect the lender incase of a foreclosure.
- If You Can Afford It, Go For A 15-Year Mortgage – A 15 Year mortgage will save you lots of money in interest while allowing you to pay off your home in half the time. However, I would never do a 15 year mortgage. You never know what life will throw at you. You could lose your job or suddenly get a huge decrease in income. Having a 15 year mortgage means you need to have a larger 6 month emergency fund to afford the higher payments if you are unemployed for a few months. It is less risky to get a 30 year mortgage and pay double the mortgage payments or use velocity banking to pay off your home in 5 to 15 years.
Finance Throttle Says:
Don’t rush into a home out of fear of missing out. If you are looking to buy real estate as an investment property, keep in mind that it is very difficult to find real estate with ROI’s equalling the performance of the stock market. Don’t assume certain neighborhoods are hot and don’t assume that all real estate will make you money. My personal financial requirements in buying a home are outlined below.
- Buy A House When You Can Make A 20% Downpayment To Avoid PMI (Private Mortgage Insurance)
- Buy A House With No HOA/Condo Fees Or Fees Less Than 10% Of Your Mortgage.
- Select The Mortgage With The Lowest Interest Rate And Lowest Payment – This is typically a 5/1/30 ARM Loan. That would give you a 30 year loan where the first 5 years have a low fixed rate which will adjust to the market rate annually after 5 years.
- Buy A House When You Are Debt-Free
- Wait Until You Have 6 Months Of Emergency Savings – This would be on top of the 20% downpayment and real estate transaction fees. Yotta Savings is one of the best savings accounts out there and it is what I like to use. Use Code HyderFT to get 100 free lottery tickets.
- Buy A House That Allows You To Have A Monthly Mortgage Payment Less Than 20% Of Your Monthly Income – You don’t want to be house broke. Buy a house that allows you to travel, eat out, and have fun.
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