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Understanding this concept is basic to making wise decisions when it comes investing. Now, with the values of real estate dropping like a lead balloon, this topic is even more important. No one invests with the idea of losing money. It is necessary to try and invest in things that will earn money. Otherwise, sad faces all around. A lack of this understanding is evident in the sub-prime mortgage loans.
My own roommate is frustrated with her financing package and would love to find a way out. Her property value has dropped. Like many others, during this crazy mortgage time, she didn’t make any down payment. Therefore, she has no equity. Getting out now would be a disaster. The only thing she would accomplish is getting this loan off her credit record. Those stuck in these situations need to look to the future if they can still keep up the mortgage payments.
She, like others, haven’t lost money yet. It is inaccurate for those with similar mortgages to say they have lost money just because they received a new tax bill showing the property value has decreased. You don’t lose money unless you sell when the value has decreased.
The only time someone makes money selling a resource when the value has declined is if they have shorted a stock in the stock market. (You bought an option that said it would go down.) Other wise, smart investors hold on to the property until the value bounces back up. This is, of course, doesn’t apply when you own a chunk of stocks and the price is dive bombing. In that case, you get out before you lose all the money you put in.
This principle of present versus future value may sound too simple for some. I’ve had several stock brokers as public relations clients over the years. I was in one’s office the day after monthly statements went out. He had to take a call from a client who was whining greatly because, according to him, “he had lost money.” The value of his stock was down at the moment. No matter, how long my client explained this was a temporary state, and to wait out the market, the customer hung up convinced he had lost a portion of his money.
Growing your money (putting your money to work) is the principle behind all investing and some other creative dealings. I have a son who understood present versus future value as a teenager. I didn’t get it then, but he did. His father would have him do a project and give him an IOU for the end of the month. Based on that, he would find a small electronic gadget/toy to buy and fix it up. He would then sell it to someone else for a profit. By the time he collected on his original money, he had already turned a profit.
Only a small percentage learn early on that there are only three ways of earning an income in life. Either you go to work as a wage earner, sign up for welfare or put your money to work for you. I know it isn’t easy when times are hard. Don’t let your money lie idle. Find a way to put it to work, even a small amount. There are always small collectibles one can get into. Forbes use to have a section on that issue at the back of the book. Like pretty tea cups and glasses? Buy a couple of books on antiques. It might sound insignificant. My antique china collection came in handy when I was unemployed in the 90s.
The point isn’t what you do, but that you do it. You can make it a family project. Children love collecting things and you will be teaching them a valuable lesson. Thinking bigger and might want to indulge in e-trading? Why not get the books and learn the tricks with the rest of your family.
On a final note, do not get into a mortgage that gives little or no chance of having your money grow. Your mortgage property is supposed to give you more than a roof over your head and a tax write-off.
Wherever you put your money, give it a shot of helping your future. It goes without saying that there are no guarantees. Except, of course, if you don’t do anything with your money but keep in your pocket, nothing happens and you spend the rest of your laboring at a job. Thinking about growing your money gives you a chance at a better future.
For more examples of my work: http://www.bellbusinessreport.com
Laura Bell
writer@well.com
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