Don’t look at your stocks today!

The stock market is depressing, I know. Most of you are not retiring tomorrow, right? Let’s joke so we can feel better…that we will now retire at 97. I certainly do not mean to make light of any of the losses we are all suffering in the markets. But lets us take a step back, and keep things in perspective. (1) You signed up for this the day you bought the stock- you knew the risk. It can go up, and go down (2) You have not complained at the gains you have made before 2007, certainly (3) TAKE A BREATH, stop ‘micro’ trading, and ride out the storm. Now for those of you that need the money now, I can certainly understand the wig factor you are experiencing. Talk to your advisor, put money in cash for a while. Take a break. But if you have a few months…sit it out. The market will rebound. The elections will pass, there will be confidence restored. History has shown us that.

Several clients this week were calling me about pulling out of contracts, or waiting until things calm in the markets. My question was ‘ Why?’ Real estate is the BEST investment there is. It is tangible. Furthermore, rates are still historically low, or at least average. By historically low, I mean in the last 20 years, not the last 5! Our problem is that we still remember the 3 month period back in 2003 when the 30 year fixed reached 5.0%. Those of us that really wanted to roll the dice, got a 7/1 ARM at 4.375%. As sexy as that may be, we know the end result, it was a pipe dream to think that would last. What has this thinking taught us? We as a society have a false sense of comfort in thinking that rates can stay low indefinitely, or that gains in stock will be there forever. Again, we have to step back and let things ride. Budget, spend wisely, save for a rainy day, or a down payment on a house or that matter.

As for mortgage rates, this week, the FED lowered the federal funds rate .50% . This is the overnight lending rate to banks – or the fed window as it is commonly named. Rock on! That means my mortgage rate on my pending purchase just went down! NOT THE CASE. In fact, mortgage rates went up at the news. Logical? Not to the average person. But economically, when the fed rate goes down, it is cheaper for banks to borrow, which increases profits, which translates to them spending hard dollars on things like wages, goods and capital expenditures. So the news on Wed made the stock market go up, confidence restored (temporarily, I know) and the investors took money out of bonds to purchase more stock. When this happens, the bond prices are pushed down..to attract more buyers back over, and the yields then go up…to attract more buyers. When bond yields go up, mortgage rates go up. There you have it, that is exactly what has happened. We are up .25% from last week.

Enjoy your weekend, and stay away from CNN. Go to the park instead, or go to the movies, just don’t buy the concessions, since we are now budgeting and all.