A beginning investor asks for your advice. What would you tell him or her?
According to investors surveyed recently by Millionaire Corner, the majority (68.5 percent) would recommend that the beginning investor be sure to contribute to a 401(k) or other type of defined contribution plan. But younger investors would also recommend buying a home while prices are low.
Twenty percent of investors overall would recommend beginning investors get in on the ground floor with real estate. Across wealth segments, households with a net worth of less than $100,000 were the strongest proponents of this strategy (29.5 percent). Millionaires were the least likely to suggest this direction.
Younger people are particularly keen on real estate. Thirty-five percent of those under 40 would recommend it to beginning investors, compared with 13 percent of those over 60.
The housing market typically leads the country out of a recession, but that has not been the case since the most recent recession was pronounced over in 2009, and it remains stagnant. Fewer people bought previously owned homes in March, the National Association of Realtors has reported; this despite that the average rate on a 30-year fixed mortgage stayed near its lowest level.
Speaking last February, Federal Reserve Chairman Ben Bernanke said that the collapsed housing market was holding back the economic recovery. “The weak housing market impairs homeowners' financial health and diminishes the quality and stability of neighborhoods and communities,” he noted. “The troubled housing market depresses construction activity and employment. We need to continue to develop and implement policies that will help the housing sector get back on its feet.”
One encouraging sign is that a majority of investors surveyed by Millionaire Corner (54 percent) said that the value of their home had not diminished in the last six months. But there is a lot of ground to be made up. More than three-quarters (78 percent) said that the value of their home is either “substantially lower” or “lower” compared to five years ago, compared to 29 percent who said their homes were “the same” or “higher.”
One reason why the youngest investors are so gung ho on urging beginning investors to buy a home while prices are low: 13 percent of those under 40 said their home was “substantially higher” in value compared to five years ago, compared to just 3 percent of investors overall that we surveyed.