Crises and opportunities
Posted August 13, 2012on:
Do you see any evidence of superior investment strategy for the last five years? Seems all is correlated and all is going nowhere.
This is a question I got from a reader of my newsletter.
I hate to be impolite, but I think he is focusing on the wrong thing. Yes indeed, over the last five years, the market has given us one disappointment after another – first the financial crisis in the US and now Europe.
There is a silver lining in all of these crises, though. Mortgage rates are at an all-time low. Five years ago today, the 30-year mortgage rate was 6.75%; now it is 3.5%. If you have a $400k mortgage on your house, do you know how much you save if you refinance?
Under the original mortgage rate, the monthly payment is $2,594; under today’s mortgage rate, the monthly payment is only $1,796, a savings of $798 a month or $9,576 a year.
If you invest that amount every year for the next 30 years, and assuming your money grows 8% per year, you will have $1.1mm in 30 years. These crises just made it possible for you to become a millionaire!
Instead of bemoaning a crisis, why not seize the opportunity that it presents.
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