10 Updates

Your Home Is Not A Retirement Piggy Bank

Apr 21 2014, 3:38pm CDT | by

The investment bank J.P. Morgan recently released an interesting, very lengthy report on the state of the markets. Compelling reading, but the really arresting chart was all the way out on slide No...

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13 weeks ago

Your Home Is Not A Retirement Piggy Bank

Apr 21 2014, 3:38pm CDT | by

The investment bank J.P. Morgan recently released an interesting, very lengthy report on the state of the markets. Compelling reading, but the really arresting chart was all the way out on slide No. 65.

On that page, you learn the long-term performance statistics of a number of different asset classes. Here’s a simple list version of the chart:

  • Real estate (REITs) : 11.2%
  • Gold: 8.4%
  • S&P 500: 8.2%
  • Foreign stocks (EAFE): 6.5%
  • Bonds: 6.3%
  • Homes: 2.7%
  • Inflation: 2.5%
  • Average investor: 2.3%

That’s what happened from 1993 through 2012, according to data gathered by market research firm Dalbar and cited by J.P. Morgan in its report. People tend to focus on the last item, the relative performance of the average mutual fund investor .

That’s a terrible result, I know, but I want to point out instead the two entries just above, inflation and home prices.

All investing at its root has the same goal, to beat inflation by a wide enough margin to allow your savings to grow by compounding in a reasonable period of time. Given that most people save for 20 to 30 years in order to retire, that is what we have to consider “reasonable.”

So, your target is double, double again and maybe double one more time . One becomes two, two becomes four, then becomes eight.

Zero growth

What many people do instead is focus on the single biggest asset in their lives, their home. That’s not a bad thing. Owning a home can be a great deal, since you get to live in it while you pay it off and the taxes and interest are deductible.

But you shouldn’t confuse owning a home with real retirement savings. Even if you plan to downsize, the amount cash you might realize in a sale and repurchase will not be significant.

Meanwhile, your home “investment” is only growing at about the rate of inflation , which is to say, by nearly zero.

Your return goal should be to safely double your savings every decade. That would require you to earn at least 7.2%. Add in normal inflation, and your goal becomes something closer to 10%.

Can you do that these days? The short answer is yes. An all-stock portfolio in the years from 1950 through 2013, a period which included every major market crash and hiccup in modern times, nevertheless gained 11% annualized.

A bond portfolio did 6.1%, and a 50-50 stock and bond mix returned 9%, according to J.P. Morgan’s analysis.

Lower costs

The real trick is owning enough stocks early, when those market declines are opportunities to buy rather than a headache to endure, then slowly move over to a less-volatile mix of income investments as you age.

That type of portfolio management is getting easier and easier to do at greatly reduced cost, thanks to ETFs and simple online software. So, yes, buy a home and keep it repaired and enjoy those tax breaks year after year.

Just don’t bet your retirement on it.

 
Update
10

6 weeks ago

RM47mil KWSG contributions still unclaimed

Jun 9 2014 7:54am CDT | Source: Business Times Malaysia

Cambodia's Famous Battambang Circus
KUALA LUMPUR: About RM47 million of contributions in the Teachers Provident Fund (KWSG) still remain unclaimed, the Dewan Rakyat was told tod ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
9

6 weeks ago

Gold shop lost almost RM1mil

Jun 9 2014 3:50am CDT | Source: Business Times Malaysia

Collingwood Magpies Training Session
KANGAR: A gold shop owner lost almost RM1 million after after the safe on in his shop was broken in ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
8

6 weeks ago

Motion to debate MAS losses in Dewan Rakyat rejected

Jun 9 2014 3:39am CDT | Source: Business Times Malaysia

Federal Aviation Administration Bans All US Flights To Israel
KUALA LUMPUR: AN emergency motion to debate the losses incurred by Malaysia Airlines last year, amounting to RM1.2 billion was rejected by the Dewan Raky ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
7

6 weeks ago

MH370 Tragedy: Hisham: RM27.6 mil spent on 1st phase of SAR

Jun 9 2014 2:11am CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia spent some RM27.6 million in its first phase of the search operations for missing Malaysia Airline flight MH370, said Acting Transport Minister, Dat ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
6

6 weeks ago

9.1m litres of diesel seized in a month

Jun 8 2014 1:11am CDT | Source: Business Times Malaysia

INDIA-CHINA-DIPLOMACY-TRADE
PUTRAJAYA: The Domestic Trade, Cooperatives, and Consumerism ministry has seized some 9.1 million litres of diesel and property worth RM58 million since mounting ‘Operasi Diesel Selatan’ in the southern states last mont ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
5

6 weeks ago

Girl, 9, awarded RM2.78m compensation for medical negligence

Jun 6 2014 4:56am CDT | Source: Business Times Malaysia

Government Weekly Cabinet Meeting
KUALA LUMPUR: A nine-year-old girl who suffered brain damage during her birth at a government hospital was awarded over RM2.78 million in compensat ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
4

6 weeks ago

Malaysia's total trade in April up 12pc

Jun 5 2014 11:52pm CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia's total trade in April 2014 rose by 12 per cent from a year ago to RM123.86 billion due to growing trading activities, International Trade and Industry Minister Datuk Seri Mustapa Moh ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
3

6 weeks ago

Works Ministry to spend RM20m for upgrading works at 50 accident black spots

Jun 4 2014 11:35pm CDT | Source: Business Times Malaysia

Iskandar Johor Open - Previews
JOHOR BARU: The Works Ministry will implement upgrading works at 50 accident prone locations in the country that have been identified this year involving an ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
2

6 weeks ago

Najib launches loan scheme for Ramadan traders

Jun 4 2014 10:24pm CDT | Source: Business Times Malaysia

EurAsia Cup presented by DRB-HICOM - Day One
PUTRAJAYA: Prime Minister Datuk Seri Najib Razak today launches RM45 million Ramadan Bazaa ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
1

7 weeks ago

Residents bring up objection against Kidex to Suhakam

Jun 4 2014 4:49am CDT | Source: Business Times Malaysia

PETALING JAYA: A group of 20 Petaling Jaya residents held a meeting with the Human Rights Commission of Malaysia (Suhakam) over their objection against the proposed RM2.2 billion Kinr ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 

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