[quote=bewildering]
Fair point. But you also have to plan for “what ifs” like things continuing as they are for the next 30 years. 2-3% house appreciation/year, 2-3% rent increase per year. The economy plods along.
In this case if you are intending to stay in the same place for at least 5 years then buy.
I suspect people do not consider unrealized gains (from not investing in stock market or buying a house) as losses. This attitude is very human, and very short sighted.
Myself, I failed to follow my own rules and did not put my ROTHIRA contribution in the SP index fund last january because I thought the market was overvalued. Instead I put it in a money market acount. I LOST 20% because of that dumb decision.[/quote]Yes, you should totally plan for that “what ifs” as well. With all of these “what ifs” and various different probability of them coming true, the only way I see for me to be ready is to be diversified. Don’t put all of your eggs in one basket. Do put all in the stock market, don’t put all in the housing market, don’t put all in the money market, etc. If you’re well diversified, then you’ll win some and you’ll lose some. But you can then re-balance your various investments as the picture gets clearer.
I agree with you that if you plan to stay in the same place for at least 5 years, then buy. That’s why I brought up the point that it’s actually cheaper to rent than buy in some areas.
If you consider unrealized gain from not participating in the stock market, you should also consider unrealized loss as well. Since we don’t have a working crystal ball, we have to wait and see which one it’ll be. Then there’s also the appreciation of real estate and the leverage you’re taking with that capital. Lets say you take $100k out of your stock investment to buy a $500k house. Over 5 years, the stock market went up 40%. That mean you have $40k in unrealized gain from the stock market. But then, if the housing market went up 10%, you’d have a $50k gain from the house. There’s no way to know at the moment which will appreciate more, which is why you shouldn’t put all of your eggs in one basket.
