Saving Money Archives

Gold and Diamond Jewelry is a Bad Investment

Gold and Diamond Jewelry is a bad investment. It’s such a simple statement, but many do not understand just how bad of a hit you are going to take when purchasing jewelry.

The jewelry market is ten times worse than a used car dealer. Jewelry dealer’s job is to sell you something for literally at least double the price of the actual value. They will assure you of it’s value through certificates of appraisal which might as well say it’s worth “clown bananas and Nyan cat moon rainbows.”

Jewelry is StupidMoon Rainbows

I came across something that really makes the point. A local craigslist’er sells gold and diamond heart pendants. These retail from anywhere from $99 to $299 in store , and the seller asks for about $100 to $125 for these pre-owned pendants. This sounds pretty fair? Oh heavens no.

Jewelry is a Scam

How much are these pendants actually worth? About $25 dollars. That’s right, $25 dollars.

Don’t believe me? Here is a the ultimate fair market test – a completed eBay auction. $28.99 with 4% cash back.

jewelry is a waste of money

This eBay auction is not an outlier at all. I am constantly reminded of how worthless jewelry really is thanks to eBay. Sad part is, this is virtually scrap value! 2.2 ounces of 10k would be worth $51.11 at current market prices, and assuming it is half gold and half diamonds it would be worth about $25.55 in scrap gold alone!

Remember these pendants sell for about 600%-900% more in retail stores. The best part is if you had it appraised, I’m sure a jewelry store would assure you it is worth hundreds even if you show them the eBay auction (try it yourself).

The scam continues and America has yet to wise up to it. If you don’t buy your girlfriend jewelry, you’re a terrible man according to what I’ve been told via media. My girlfriend deserves the best and I don’t mind if it costs a little bit of money to achieve that, but the jewelry industry is disgusting.

On a side note to all of this, I find it interesting that so many people are engaged in gold scrapping and salvaging. People will salvage anything from jewelry to CPU and motherboards from old PC’s (which contain gold). Sure they have to use $10 of chemicals that most likely cause rectal cancer to get that $100 of gold from the 400lbs of motherboards they paid $40 for, but I think it’s awesome. The best part is the equipment  — I have a crockpot and a coffeemaker in my home and this device below is up for $299 dollars! I think I’m going into the jewelry and/or gold salvage equipment business. What a world we live in!

gold salvage kit

rate calculatorOwning a home might be one of the worst investments you can possibly make in the foreseeable short-term, but not for all of the obvious reasons. I am going to talk about the most overlooked cost of ownership that people rarely realize. The opportunity cost of your equity.

Let’s say you are a young couple in their 30’s and you buy a $250,000 house @ 4% (or less) in today’s market. You then make extra payments and by age 40, you have no mortgage! Just think about it, that $1193 monthly(rate calculator) payment is gone forever, but at what opportunity cost.

I am not here to talk to you about the money you could have earned at age 30 to 40, even though you surely have lost a lot if you were able to obtain a larger than 3% return on your investments (approximate effective rate of mortgage until non-itemized), but let’s put that aside.

I want to talk to you about the $250,000 you have your house, in equity.

I personally was able to achieve double digit growth 11 out of the last 13 years in stocks. Let’s say you were able to earn just 7% on investments – your equity is tied up in your home. If you had $250,000 in cash and earned 7%, you could earn $17,500 a year or $1,458 a month – MORE than what you are saving by not having your $1193 monthly payment. If you were able to obtain 10% it would be $25,000 or $2083 a month!

Let me break it down to you this way, if you are able to get a 10% return you would save $890 a month or $10,680 a year by putting the money into stocks and into your home.

Your cash is locked up in your home and odds are 10 years from now you can no longer borrow cash for an effective rate of 3% or even 4% – you have destroyed your mechanism for cheap borrowing. If the market does recover and people start earning 10% annually, I promise rates will sky rocket.

Hypothetically you might be able to get a HELOC (Home Equity Line of Credit) during this time, at a higher rate, let’s assume 7+% versus your old effective 3%. If you were to borrow that $250,000 you would pay $10,000+ more in interest a year at 7% vs 3%. A harsh penalty for paying down your mortgage. I know most people simply would rather live mortgage free, but I for one always like to maximize  the amount of money I have, but hey – that’s me.

Moral of the story – Your home is a very cheap form of debt now a days and should not be paid down unless you either get an extreme psychological benefit or you are sure you cannot out perform your effective rate on your loan. But I’ve said it before and I’ll say it again – if you think 3 or 4% rate of return is good enough, then you are going to have some struggles ever obtaining real wealth.

I know this article makes a lot of assumptions, but I hope you take home the message that if things turn around in the economy or if you think you can out perform 3% in stocks/options – then paying down your mortgage might not be a smart financial move.

Useful to people searching for:
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The Housing Market With Increasing Interest Rates

Housing Market 2012The housing market was slightly down, but relatively stagnate in 2011. The housing market has become increasing segmented, (meaning some areas are showing very small gains while others are still showing giant losses) and many people are wondering if now is the time to buy. My opinion? If you are looking at a house as an investment or way to “save”, you should stay out of the housing market.

Let me first say that I am a home owner. I own a home that was recently appraised for $160k and I owe about $117k on the mortgage. I have not paid down the mortgage what so ever, but I have basically completed a very costly rehab of the house. I have skin in the game, which is why what I might say next is relatively shocking.

The housing market might be doomed. I believe the housing prices will not increase and could even decrease in most areas of the nation for anywhere as long as 5+ years. The bottom line here is that we haven’t bitten the bullet of how bad the housing market really is right now.

One of the biggest threat we have to housing is interest rates. A 30 year fixed mortgage loan is at roughly 3.9% today. Many people might find current interest rates as exciting, but to me it’s terrifying.  Interests rates are bound to increase and just for the record – I’m aware increasing interest rates are usually a good sign of economic growth.

Let’s assume you purchase a $200,000 home today @ 3.9%. You payment would be: $943.34 a month for the mortgage alone.  Now let’s say the economy picks up and interest rates go up to 6% – Now suddenly your payment is $1199.10 ($255.76 more / 27.1% more). To keep that $943.34 payment at the new rate of 6%, your house would have to have a selling price of $157,342 (-$42,658 / –21.3% of your home’s value) .

Now you could be quick to assume that because of the interesting interest rates, that means a better economy and more jobs, but do you really think things are going to go back to they way they were? If anything we have a glutton of homes, a young population that doesn’t want to own (or can’t), a ton of foreclosures in the pipes, and an aging baby boomer population that will soon be selling their homes for an easier lifestyle (condos / assisted living), adding to the already excess inventory. There are a lot of things holding the market down that could actually making housing prices worse regardless of increasing of interest rates.

Housing has to return to what it simply is, a place to live.

I read articles and blogs talking about how it is “now cheaper to own than rent.” Are you kidding me? It is only logical that it is cheaper to own than rent. Just think about what you are doing, you are locking a large sum of your liquid cash in a down payment, you are committing yourself into a home and a community, and you are subjecting yourself to potential losses if your community or the housing market in general continues to fall, and did I mention that you just lost 6% of your home’s value the minute you sign the paperwork and your closing costs?

The housing market has a heck of an uphill battle. I know the Fed has promised to keep interest rates where they are for at least 2 more years, but if they increase the rate before a real recovery – You are going to see massive losses across the board in the housing market.  Did I also mention that you need the housing market to go up with inflation just to break even, so every year it’s stagnate is effectively another loss?

I’ve said it before and I’ll say it again – without the $8,000 incentive I received for buying my home – I wouldn’t have seen it as a viable option. It appears the the days of free money for buying a home are over, at least for now.

I Have to Make Money, Because I am Young

Earning MoneyI have to make more money. What can I do for money? These are thoughts that I am constantly thinking, but why? Why are young people so hungry for cash?

Are you like me, constantly thinking of ways to generate cash inflow?

I have a couple of ideas why young people tend to be so money hungry.

     

  • Being younger usually makes you more ambitious and less jaded towards the world.
    Anything is possible. Maybe you will start a business and strike it rich, who knows. When you are young you also aren’t thinking about responsibilities like children and health insurance (most likely), you are uninhibited in a big world of possibilities. I am confident that this thought process fades with time and added responsibility. 
  • Get a little money while your young and become rich later.
    The power of compounding is a an amazing thing. I myself am confident I can get double digit returns on stocks and options most years, but what’s 20% of $6,000? Starting with a big number allows you to grow exponentially.If you earn 10% for 20 years on $6,000 you will have $40,364 – but if you would have started with $15,000 that first year – it would have been $100,912 after those 20 years.
  • When you have very little money, a little more seems like a lot.
    Last year I did a lot of amazon/eBay selling that probably is going to net out to be about $500 a month before taxes, and I only sold “hardcore” for about 4 months of the year! Here is the thing though, that is $500 on top of my normal salary. If you make $2000 a month and $1500 of it goes towards living expenses, you have $500 of discretionary spending – so getting an extra $500 effectively doubles your discretionary spending/investing.

So what is the post of this article? I am here to say to you – Don’t stop fighting. Keep trying. Never stop. If you failed before – keeping trying.

Getting an extra $5,000 a year even for a few years can drastically change your 10-year picture if you properly invest it.  Think about how much different the world would look with an extra $25k+ in cash?

One step at a time. Take a poke around the blog and you might be inspired for your next business venture.

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