Personal Finance

Three Ways to Benefit From the Downturn

Pollyanna I am not, however, I am unable to be ‘down’ for long periods of time. My tendency is to always search for, and find, the upside. So where is the silver lining in all this mess? Well, there are a few, with caveats:

Cheap and bountiful housing: There’s no doubt the housing market has swung widely in favor of buyers. What determines if you’re able to take advantage of homes for sale (and on sale) are your three C’s: excellent credit (note: not good, not great even, but excellent!), collateral (bring that 20%+ down payment with you), and the capacity to pay your mortgage each month and then some. But don’t get too excited about buying a second or third home these days even with the three C’s—most mortgage lenders are way too skittish to make loans on more than a primary residence.

Too many cars and trucks: Horrible auto sales in the past several months, especially when it comes to gas-guzzlers, has made choosing a new (or CPO) ride easy, and cheap. Though the end of this month may bring on new car sales so far and wide and deep our heads will spin, the truth is that finding an inexpensive way to borrow money to buy a vehicle is going to be a challenge. Only a few months ago, someone with great credit could get 1% financing. No longer. Auto loans are now in the 7%+ range and dealers will have to come up with other incentives to defuse these higher rates. What’s the point of knocking down the price if the interest is high enough to make the buy just as pricey? This silver lining is all about borrowing less to get the truly best price.

Stocks on sale: OK, this one is for the young’uns with 15-20+ years before retirement. Regularly contributing to your 401k or other IRA right now is a great thing—a smart thing. For example, though you put in $100 one week only to see it shrink to $70 the next, remember, your $100 is buying 4 holdings (for example) whereas a year ago it may have only been able to buy 2. Dollars going into the market now are buying more. Of course, what you bought a couple of years ago is now losing money, but in the end the trick to long-term investing is regular contributions over time averaging out your return. You’re buying low right now and with time on your side, that can only mean you’ll profit off of the upturn.

And there will be one.