Investing


My sister and her boyfriend have made the monumentous decision to purchase real-estate together.  They’re looking for something in the $100k – $120k range, and are willing to live in less-desirable neighborhoods in a home with high demands for improvements.  They have exactly $20k in savings, which they plan to use entirely for their down payment. 

Frankly, I believe this to be a terrible idea.  Not buying a home, but using every penny that you have to fund your home purchase.  Particularly when buying a home that requires repair.  But when the only way to afford a house is to spend all of your savings, is it then appropriate?

I have had extensive conversations with F, my pseudo-brother-in-law, about this choice they’ve made.  “We need the money to get a loan,” he’ll say.  “But what happens if there’s an emergency for which you need that money?” I’ll protest.  “We’re going to get a credit card for those situations,” F counters.  “But…(gasp)….if you don’t have the money when the emergency comes up………” I pause, trying to catch my breath “……….how are you going to pay the credit card in full when the bill comes?”

To date, he has yet to come up with a good response.

Here are two people that struggle with their finances on a fairly regular basis, and now they plan to stretch themselves even further, with no financial cushion, to realize the dream of owning their own home. 

Meanwhile, in the Mid-West, R’s brother and his wife are preparing to take the mortgage plunge as well.  Not only are they stretching themselves to pay for it, but they’ve also accepted an adjustable-rate term on a portion of their mortgage.  Due to a combination of factors, including low income levels, lack of employment stability, and poor credit, this was the only way they were able to get financed.

R has done his best to dissuade them from buying the house, but they, like my sister and F, are steadfast in their decision. 

I started to wonder why both couples, so abrubtly, decided to buy a house on limited finances, with almost no forethought.  They have not been saving for this goal.  They have not done the legwork to find out how much home they can afford, the burden of property taxes, or the cost of repairs.  They have not spent the last several years evaluating different houses and architectures they like and dislike so that they can confidently make a decision about they type of home they want to live in.  So why, all of a sudden, do they have a burning desire to be homeowners?

Maybe because the time feels so right.  The media, the real-estate industry, the government: they’re all trying to convince us now is the time to buy.  If you don’t buy a house RIGHT NOW you’ll miss the opportunity to strike while the iron is hot.  All of those good deals will slip right between your fingertips, and years from now, when you’re still renting, you’ll look back with regret on your one chance to buy a home.  Don’t miss the boat!

Even I am not immune to these persuasions.  I was recently reading an article about home prices seeing a surprising increase, and momentarily worried that if we didn’t buy a house now, our window of opportunity would close.  And I find myself a bit envious of R’s brother and his wife.  While we have been tentative and indecisive about moving forward with buying a house, they are going for it.  I suppose there is risk with every reward.  But I will not be bullied into making the biggest investment of my life, just because I am afraid it’s now or never.  And maybe that’s true – maybe it is now or never.

But I think I would rather be a financially comfortable renter than a bankrupt owner.

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For about the last two years, R and I have been weighing our first real-estate purchase.  Back in the NW, we came frighteningly close to spending multiple hundreds of thousands of our hard-earned dollars on a beautiful 1906 craftsman that turned out to have major electrical problems and therefore failed our inspection.

I remember, at the time, feeling so let down and disappointed.  My imagination had run wild with ideas about this house; the decorating, hosting, raising a family….that when the deal fell through, I genuinely believed that we had lost the home we were meant to buy.  In the brilliance of hindsight, letting go of that house now feels like the most intelligent decision we ever made.  We would have been stretching ourselves to make the payment, our lives would have been tied to that house, and its geography, and – while we didn’t know this at the time – both of our jobs were in serious jeopardy. 

R was employed by a supplier within the automotive industry.  Shortly after resigning his position to join me in my hometown, said supplier eliminated more than 35 jobs of the original 75.  Of those positions, over half were a part of R’s former department.

Meanwhile, back at my former employer, the budget was in serious decline as well.  As a retail and manufacturing organization, they had done well for the past several decades.  But their products are exceptionally well made, making them a bit steep in the affordability factor.  Additionally, their main product line is used primarily in home building and remodeling – which, as we all know, is a practice many people discontinued in the midst of this economy.  I recently heard from a former coworker who told me of a round of layoffs that affected over 30% of the entire workforce.  This massive layoff included positions ranging from janitorial work to the executive team members.  Needless to say, the remaining 70% are highly fearful and uncertain of the stability of their jobs.

At the time, we also didn’t realize how strong the pull to return home would be for me.  Had we gone through with the deal, that beautiful house, which I so desparately adored, would have turned into a terrible burden.  We would have been prisoners to the investment of money and time it required.  Perhaps we would have finally given in to our joint craving for a canine companion.  And before we knew it, we would have established the NW as our home.  Which, I should probably confess, R likely may have preferred it.  But I imagine I would have resented it.

Now, back in my hometown, our sense of permanency is strong.  With R’s “green collar” job, and mine in the healthcare industry, we’re also back to feeling pretty secure.  And we’re back to discussing real-estate. 

Let’s just hope it’s not a case of history repeating.

Every childhood birthday that I can recall, my grandmother  gave me a $50 US Savings Bond.  At the time, I found great disappointment in the lack of a glittery new toy, but I now feel deep appreciation for her foresight.  My dad kept these savings bonds locked away in his safety deposit box for years, until I requested possession of them just a few weeks ago.   Browsing my way through the TreasuryDirect site, I figured my bonds to be worth just under $500.  Not an enormous amount of money, but a decent chunk of cash.  
 
I thought long and hard about the best way to use this money.  Add to my emergency fund?  Deposit to my Roth?  Shopping spree?  It was also becoming clear to me that the stock market is taking a full-on nosedive, and it seemed like it might be a good time to throw some money into the fire.  There were good deals to be had, I was sure.  So I decided to use this money to introduce myself to the investing game.  
 
Currently, my 401k contribution is at 5%, with just one of those percents being matched by my employer.  That money is invested – but I don’t know anything about it.  It’s all done through the investment company, and my participation in the process is limited.  So when I decided to start investing my $500, I had no idea where to start.  R was kind enough to help me set up an account through Charles Schwab – which still sits empty.  He showed me how to view the stock’s history, and look for indicators that the value might be rising.  He pointed me in the direction of Investor’s Business Daily, and suggested I join a simulated stock trading game.  
 
But I still didn’t get it.
 
I signed up for the “fantasy stock market” and perused the pages of Google finance.  And I have no idea what to do with all of that information!  There’s a big search window to “get quotes,” but what am I getting quotes for?  I understand the idea of buying and selling shares, but that represents the entire body of my knowledge on the subject.  How do I figure out what companies I want quotes for
 
All of the money advice I see includes the dire need to invest money.  Well, I have the money!  I just don’t know how to do the “invest” part of it.  Do most people use brokers for this sort of thing?  Or are most people just more intuitively capable of choosing where to put their money than I am?
 
So finally, I returned to the Charles Schwab site, and started researching some stocks.  R showed me how to build a custom screener, and I selected a few that interested me.  I googled all of the companies, and dug up all the dirt I could find.  The companies that I still liked after an exhaustive investigation – I must have clicked on three different links for each of them! – I settled on six stocks that I am interested in purchasing.  I headed over to my fantasy stock trading game, and purchased 15 shares of each.  This way, I can continue to hover on the edge of real investing, and just dip my toes in the idea of it.  I’ll watch the stocks for a little while, and see if any give me a heart attack.  Maybe I’ll add some more, maybe I’ll get rid of some.  And then, well, I suppose I’ll dive in – or, more likely, belly flop.