Right on Your Money I Dan ~dlec

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Ignore the Headlines!
Except this one. Sure, housing's in a hole. But there's a

poten"f case for buying now, whether it's real estate or stocks ExcerJij: rom TIMEmagazine: February 2008. At last someone in the media who f understands howreal estate(and investing)works!! This is not your typical"scary" sky-is-fallingarticle(so it won'tsell as manymagazines), ut finallya reporterwho b usesreasonand logicto analyzethe buyinga sellingof realestate
FAMED MONEY ANAGER M PETER LYNCH is IAerhaps estknown forhis timeless b wisdom that you can beat the pros by focusing on stocks ofcompanies where you either work or shop or have some other edge.Buta more relevant Lynchismtoday is this gem:'Ignorethe headlines. That's no easything. How do you tune out all the chatter and ink on recession,housing, subprime woes,the credit crunch, rogue traders, insolvent bond insurers, $100oil and nukes in Iran? It's enough to make you sit on your thumbs and wait beforemaking any big moves. Butwhat, exactly,are you waiting for? There has rarely been a moment in history when you couldn't scareyourself into doing nothing.And yet, asLynchobserved nearly 20years ago,"in spite of all the great and minor calamities that have occurred... all

last quarter, and there has been plenty of panic about a recession.TheFederalReserveis slashing shorHerm interest rates atthe fastest clipin decades.Butif you stickto your steady,diversifiedplan while everyoneelseis retreating,you will be happy years from now.Forone thing, Fed rate cuts alwayslift the economyeventually,and the stockmarket typically starts respondingjust asheadlines get gloomiest.Sure,the market couldfall again beforerecovering.Butthe recessionmay be half overalready-or we may avoidone altogether.Youjust never know. Asforhousing, certainly someskepticismis in order.Formerlysizzlingmarkets in Florida,Nevada,Arizonaand California probablyhaven't seenthe worst headlines just yet,though they may well be close.

the thousands ofreasons that

theworld mig?tbecoming to
an e~d-ownmg s~ockshas contmued to be tWIceas rewarding as owning bonds." Atop reason to not buy stocks,in Lynch'sview,is if you don't alreadyown a home-in which case, that should be your first investment, since an owneroccupiedhome is nearly alwaysprofitable.Through a spokesman,Lynchreaffirmed these views to mehousing debacleand all.
When prices are falling,

IThiS is BIG . . The Case Against Waiting to Buy


And "jumbo"mortgages,those more than $417,000, likely to remain artificially are high for a fewmore months while banks work through their credit issues. Butlet's sayyou are emotionally ready to be a homeowner. Youhave good credit, plan to stay put for fiveyearsand have been waiting forthe perfect entry point. It's time to get serious-before an inevitable rise in interest rates wipes out your advantage."The thing that will make home prices stop falling is the veD' same thing that will push mortgagerates higher,"says JimSvinth, chief economist at mortgage firm Lending Tree.Soanything you gain by a further drop in prices might be offset by rising financing costs. Considera ical home that sells for $218,90 .Youput own 20%an get a 3o-yearfixed-ratemortgage attoday's rate of 5.5%. Monthly principalandinterest come to $994.31.Let's say

Finance costs will riseas the economy recovers,so trying timerealestate mightnotpayoff to

that 12months from now the same house goesfor10% less,or $197,010. Butby then the recession is history and the Fedis jacking up rates to stem inflation. If mortgage costs rise just half a point, to 6%,your monthly payment would be $994.94and you'd have s~vednothing. Meanwhile, home prices might steadyand sellersmight becomelesswilling to negotiate. And you have spent a
'Year living someplace you'd



to buy stocks,a house, gold, art or any other asset. But those who do pull the trigger excelin the longrun. AsJohn . D.Rockefellerfamously saId, "Theway to make money is to buy when blood is running in thestreets." And the streets are stained. . . cnmson. Start wIth stocks. They havebeen pummeled

few people have the discipline

3D-yearixed-rate ortgage p f m 5.5% Current ates after r recentdeclines

Put 20 °/ d own and get a 70

$218900 '




$19'l010 '

If prices d rap an

rathergQtpe. It s more com p Icate

additional 0% 1

Int erest


6% Recessionends,andthe Fedstarts toraise rates

you must sellbeforeyou can buy.Butthat logjam won't Persist forever~and if it ap pearsyou'll be trapped fora fewyears,try to refinance at
to day's lowerrates.llisks
, 0"

$ 9 94

. 31


$ 994 94 .
Source: LendingTree


ways ' mostacute seem when ~
the headllnes <ri you ulcers ve
But that

CONCLUSION: waited a year to buy, you would havesaved If you nothingandspenta year.Jivingomeplace s you'drathernot be

sexactly whenyou

should think long term-


~ :;:


this year. GDPbraked sharply 54

and get off your thumbs.
TIME February