Category Archives: investing

Is a House a Good Investment For You?

Are you among the crowd who is still thinking of where to invest the money they earned from years of working hard? There may have been unsolicited advises convincing you to put your share on various networking companies. Some may have even told you to put up a startup company. But is this the most practical thing you could probably do to your money? Perhaps, yes, if its your choice.

However, investing has its ups and downs depending on the industry you’re going to delve into. Yet, do you know that buying a house or owning one is one of the most intelligent investments you would probably make. Why?

Homes can be turned into rental properties. With necessary adjustments and with proper leasing or rental documents, you can turn your house into an additional income stream. What’s even good is rental fees tend to increase on regular intervals. There are persons who often move because of job changes. They constantly look for homes which they can rent, and yours can be their next rental homes.

Depending on a home’s location, it can also be a perfect vacation house. Typically, families, especially those with children, and those which embrace the concept of extended families – do love to have vacation houses. During specific periods of the year, the house can serve as a reunion spot for relatives to gather. So, thinking of having a vacation house? Should it be near a beach, the woods, or perhaps one that offers mountainview or cityview otherwise?

Home values typically increase. Thus, if you’re going to put your house for a resale – chances are you’re going to get good profits. So you better ask your local real estate agent which areas have markets in which home prices experience surges. Commonly, these areas include those where professionals flock because of employment opportunities.

Buying a house is also seen by financial houses as a better investment than credit cards. This is one reason why there are many lenders that charge low-interest rates on home mortgages.

Are these reasons still not enough to convince you how good of an investment is owning a house? Another bonus benefit of owning a house is the local community attachment you’re going to build. You’re start to have acquaintances who’ll later become your friends. Your neighbors will likely become close to you like family. There will be some sort of emotional attachment.

A Golden Opportunity to Prepare

Amid all the clatter of a new administration and new legislative priorities in Washington, it’s easy to see the trees but lose sight of the forest.

In this case, we’re talking about the U.S. government’s annual budget deficit.

Last year, the deficit grew by more than 30% to $587 billion.

And, according to a new report by the Government Accountability Office (GAO) and Congressional Budget Office (CBO), it’s on “an unsustainable path.”

No doubt the current Congress will pay lip service to the latest warning, as every other Congress and administration before has… just before turning around and opening up the spending spigot a moment later.

This situation has been well documented by experts before.

But the new key point from the GAO is its forecast…

Barring important changes in fiscal policy, the nation’s debt, relative to the size of the economy, will move to catastrophic levels within the next 15 to 25 years. Or it could happen sooner, if federal spending rises at an even faster pace without appropriate cuts elsewhere.

The Path to Ruin

In the wake of World War II, the size of the national debt relative to the economy was a historically high 106%. In the decades since, the long-term average held at roughly 44%.

The debt-to-GDP ratio was just 39% as recently as 2008.

But the fiscal crisis, bailouts and slower economic growth – as well as the lapse of “pay as you go” federal budgeting rules instituted during the 1990s – put the debt-to-GDP ratio into overdrive.

In 2015, the ratio soared to 74%. And last year, it climbed further to 77%.

You can see where this is going. As the CBO notes, large and growing amounts of federal debt:

  • Mean higher interest costs.
  • Limit government’s ability to respond to unforeseen events.
  • Reduce long-term national saving and income levels.

And, more importantly, it makes a fiscal crisis more likely.The Search for Solutions

The prescription put forth by the GAO and CBO is one that will sound very familiar to you: lower federal spending (with reduced interest-carrying costs), and change programmatic spending on Social Security and federal health care programs.

I won’t plow into that thicket here, but let’s just say that both are going to be a challenge for any Congress or president.

So where does that lead us? It points to preparations for stagflation.

For many investors younger than 50, the idea of stagflation – an economy with both inflationary and recessionary tendencies – is hard to grasp. All that most of this age group has ever known in the past three decades is reliance on paper assets, like owning stock through a mutual fund.

We have to go back to the 1970s and the tremendous rallies in gold and silver to see the value of owning hard assets and the securities backed by them. With gold and gold securities at low prices, it’s not a bad idea to start preparing for that time again.

The New-Age Investment – Alternative Investment

Alternative Investment implies investing in assets other than the traditional methods such as stocks, bonds, cash, etc. These could be private equity, hedge funds, real estate, commodities, precious metals, wine, art, etc. These type of investments are held by high net worth individuals, or institutional investors. The addition of this type of investment to the portfolio allows diversification, reduces risks and enhances returns.

The performance of assets used in alternative investments is relatively lower when compared to those in the traditional methods. They are relatively more difficult to value. They are also less liquid when compared to traditional methods.

Some popular types of alternative investments being widely used are:

Private Equity:

This can be defined as investing in private companies such as start-ups, venture capital, and financing throughout phases of the company’s growth. This investment is done in companies that do not issue public stocks. These firms raise funds through capital invested by institutional and non-institutional investors.

Direct Investment in Private Companies:

This implies investing in a start-up or a private company directly instead of the equity. This is a high risk and high return proposition.

Real Assets:

This implies investing in physical assets which are of high value. Examples of such assets are precious metals, real estate, oil, wine, art, jewelry, etc.

Hedge Funds:

In this case, funds are collected from a number of investors to form a common pool of funds. These funds are invested using different types of strategies to earn the return on investments. They have the advantage that they need less SEC regulations than other funds.

Managed Futures:

This is similar to Hedge funds where a common pool of investor’s funds is created. These funds are invested in various financial instruments such as commodities, currency and interest rate markets.

Financial Derivatives:

A financial derivative is an arrangement where the investor is promised a payment when a certain asset reaches a certain level. These securities include futures, options, forwards and swaps.

Fund of Funds:

This is a means of diversifying investments. It is achieved by investing in multiple managers, asset classes or strategies.

Private Placement Debt:

Investors can receive a steady cash flow by investing in a private company through promissory notes.

As the stock market becomes volatile and unpredictable, people are seeking safe investment methods. At such a time alternative investment schemes have come to a safe secure option to private investors. Therefore, they are becoming highly popular. However, they cannot replace traditional methods completely. They should be used to complement them. This will help to increase and diversify the investment portfolio and minimize the risks of investment.