Here’s a neat tool to help you get a REAL person when you call companies trying to avoid talking to you.  Now instead of just repeatedly hitting zero like I usually do, you’ll know what to do.  After all, it costs money to provide customer service and heaven forbid companies putting that in their operating budget.  I found one on the list that I need!  I’m sure you will too.  Click here.

I’m almost half way through a book that my sister told me about.  Outliers, The Story of Success by Malcolm Gladwell.  He also wrote Blink and The Tipping Point.  Outliers gives a different perspective on how people become extremely successful.  It’s a fascinating read.  How did the best athletes get where they are today?  How about heavyweights in the business world?  What is the meaning of 10,000 hours?  What does any of this have to do with you?  Read Outliers to learn more.  If you could develop mastery in one area, what would you choose?

Want more good books to read?  Check out our Recommended Reading List.

I’ve been an investor for a long time and I’m interested in trends in the market, because we all know investing in the stock market (or real estate market) is not a short term endeavor if you want to truly be successful.  I love the charts on Yahoo and with the DJIA rising in recent weeks I wondered what the long term chart looked like for the DJIA in January of each year over the past 20 years.  I kept buying shares during the 2000-2002 downturn and made a very nice double digit return in 2003.  Is the current chart so very different?  Looking at the chart for the past 6 months is scary but here’s what I found out when I took a longer view.

At the beginning of 2003 after the previous downturn, the DJIA was at 8054.  In January 2009, the DJIA was at 8001.  Let’s look at the long term trend from 01/1989 to 01/2009:   01/89 2342, 01/90 2590, 01/91 2736, 01/92 3226, 01/93 3310, 01/94 3978, 01/95 3844, 01/96 5395, 01/97 6813, 01/98 7908, 01/99 9358, 01/00 10940, 01/01 10887, 01/02 9920, 01/03 8054, 01/04 10488, 01/05 10490, 01/06 10865, 01/07 12622, 01/08 12650, 01/09 8001.  Would you have invested over the past 20 years knowing what has happened in the past 6 months?  I sure would have.  I would have put in even more than I did!  The point a lot of people miss is that the real value of long term investing is not how rapidly the indexes rise, but how many shares you are accumulating along the way.  If you sell out near the bottom or you don’t continue to invest when the market is down you lose a lot of ground.  Buy low, sell high means buy lots more shares at low prices and reap the rewards when prices go up and you get to cash in to have money to live or achieve goals you’ve set.

Just thought you’d like to know.   If you had continued to invest and have more now than 20 years ago, do you think you’d have money to invest in historically low priced real estate too?  Something to think about.  Fear and greed drive short term movements in the markets.  A long term vision helps put it all in perspective.  If you want to know how to do it, there are a lot of good books on library shelves that can help you.  If you need help picking and sticking with an investment allocation, meet with a good experienced financial advisor to get you going.

Are you familiar with leverage?  Have you used leverage?  If you’ve purchased a home, chances are you have.  When you made that purchase did you make a down payment of 3, 5, 10% or more?  How long ago did you purchase your real estate?  Depending on that answer you have either leveraged up or down.  It’s also dependent on where you live.  Florida?  California?  Phoenix?  Las Vegas?  Michigan?  If you bought in one of those places between 2004 and 2007, you most likely leveraged down.  If you didn’t make a down payment, you may now be in foreclosure or on your way unless you locked in a fixed rate that you could afford.  If you used creative financing, you used another type of leverage and the combination can be deadly to your finances.

Leverage according to Daniel Webster is “1) the action of a lever or the mechanical advantage gained by it, 2) effectiveness, power”.  A Lever is “an inducing or compelling force”.  I like that word, compelling.  The effect of leverage is compelling.  It creates power.  It creates the power to gain or lose.  Leverage is what caused the Great Depression.  Leverage is what you use when you buy a home using a down payment or no down payment and financing.  It is neither good or bad by itself.  It all depends on the context in which it is used.

Here’s an example.  You are buying a $250,000 home and buy it with a conventional loan in the current market.  You provide a down payment of 20% or $50,000.  Now we know it isn’t going to appreciate anytime soon, but when it does, we’ll assume the average appreciation rate for the next 7 years (the average real estate ownership period) is 5% per year.  That means that in 2016 your property is now worth $351,775.  You have a gain in simple terms of $101,775.  When you divide that number by your down payment your money is now worth a little over triple what you invested.  You have made a 204% return or an average of 29.14% per year on your cash investment.  Your investment was not the purchase price of the home, it was the amount you invested as a down payment.  That’s leverage.  Is that better than a CD?  Better than the average return of stocks over the past 80 years?  Not bad.  And you get to live in the house, use it, make it your own, not have a landlord, and get tax breaks to boot.

What if you bought that same home in 2006 for $350,000 and not soon after it nosedived and when you needed to sell in 2008 you could only get $250,000.  The $50,000 you risked now is a loss of $100,000 or a 200% loss.  Again, you used leverage, but this time it didn’t benefit you.  That is why real estate, like stocks, should be considered a long term investment.  That’s why it is important to buy wisely and make sure the mortgage you get is one you can handle under most circumstances.  That’s why it is important to have additional reserves to get you through the hard times before purchasing real estate.  We just don’t know when those hard times will hit.  We don’t know when the balloon will pop or when the balloon will rise again.  Buying real estate is a lifestyle and investment choice that has to be carefully considered.  Sometimes circumstances are out of our control, but most of the time you will be able to control your circumstances by the choices you make before buying.  It does pay to be prepared.  Leverage is why the rich get richer.  That’s why paying interest on credit cards is a bad idea.  You are leveraging your debt to the benefit of the credit card company.  This market is making people think about frugality differently.  Being frugal is smart and allows you to leverage the money you have to your benefit.  Compounding is the eighth wonder of the world.  Be a winner!

So consider your current situation and how you might use leverage.  Is it a wise choice for you?  Check out the Recommended Reading List Page to find resources that will help you learn when it is and how to control more of your own circumstances.

One post leads to another it seems.  In looking for photos of the Collegiate Peaks in Colorado I clicked through one site to another.  In the process I found this great site for South Central Colorado - home of great skiing in winter and white water rafting in summer.  The Arkansas River stretches through this area and passes through the dramatic Rifle Gorge.  If you are planning a Colorado vacation, don’t miss this area of the state.  One of my favorite spots is the Great Sand Dunes.  Amazing!

Check out the new street maps on Google.  This map location happens to be for a home I’m putting on the market on Friday, 11/28.  These new maps give buyers an even better idea about homes they want to see before they turn on their car.  What a time and gas saver!

Check out this map:
View Larger Map

Wow!  I just finished listening to the latest webinar in the library and it has some tips to help just about everyone.  Did you know that you should freeze credit bureau accounts for minors and the deceased so that their accounts aren’t at risk for identity theft?  Did you know when you co-sign a loan that the amount of the debt is on your credit bureau file also so it is added to debt you have when applying for a mortgage or other credit?  Did you know just one late payment of 30 days or more can impact your credit score by as much as 100 points?  Do you know how a short sale affects your credit?  Taking time to listen to the new webinar is worth it!  Learn ways to keep your FICO score as high as possible.  800+ is possible when you pay attention to managing your credit.

The latest webinar on Understanding Your Credit Score will be live on Wednesday, 10/29/08 at 4pm MDT.  It will be posted to the Webinar Library later in the week.  If you want to listen and see it live, please register, provide your email, and we will get you on the list for notification of this and future live webinars.  When it is archived we will post and let you know it’s available.