Despite the bankruptcy headline news surrounding American Airlines parent AMR Corp ( AMR ) (which wasn't a shocker, as I recently wondered aloud if the airline industry could be the next target of bailout talks), and the scary news out of Iran about potential hostage situation involving British embassy officials, the markets were still able to pop on better-than-expected consumer confidence data this morning.
By the way, according to MarketWatch, AMR's bankruptcy is the 100th airline bankruptcy filing since 1990. Sellers did get a but antsy as the day went on, pushing the indices to close mixed.
Several Dow components managed to put up some nice gains, including Home Depot ( HD ), Chevron ( CVX ), Coca-Cola ( KO ), and Wal-Mart Stores ( WMT ). Elsewhere on the positive side, a Wall Street analyst bullish call on oil-service related names had Schlumberger ( SLB ), National-Oilwell Varco ( NOV ), and Halliburton ( HAL ), all finishing in the green. On the flipside, we had sellers head for the exits in shares of Tiffany & Co. ( TIF ) following the jewelry giant's lackluster earnings guidance . Also, negative commentary from Wall Street analysts sank shares of Dillard's ( DDS ) lower, while appliance-maker Whirlpool ( WHR ) shares were also reeling following a price target cut .
Something to Consider Before You Pay off Your Mortgage
I had an interesting conversation with an old friend of mine yesterday. It just so happened we were talking about business and he was telling me about a new venture he was considering. His goal is to self-finance, using some of the equity in his home. He actually paid off his mortgage just a year ago, as he decided to take a hiatus from investing and was unsure about what to do with his money.
As he's going through this process, my friend has come to realize that he may have made a mistake in deciding to pay off his mortgage. You see, the money he could have used for the new business venture was now tied up in his house. He paid off the remainder of his home loan despite having a fixed attractive rate below 5%. He said the move was sort of spur of the moment, and that he thought he'd sleep better at night without any debt.
There's nothing wrong with paying off debts, but if you know you're going to need some cash (to start a business, buy something you want/need, etc.), bare in mind that borrowing money from the bank can be a difficult task these days. It also didn't help that my friend's recent home appraisal came back much lower than he anticipated - thus limiting his borrowing power even further.
In my opinion, the biggest factor to consider regarding paying off your mortgage is how that move may limit your ability to generate income. Residential real estate prices have been trending lower for the past several years, and could get stuck in that cycle for an extended period. So as an income-producing asset, your home fails to deliver much of any reward. However, if you have an attractive mortgage rate (most buyers/homeowners have rates in the 5% or below range), it would be wise to put your extra money to work for you. The key is to get started as soon as possible and put the power of compound interest to work for you with dividend-paying stocks .
Here's an example of the beauty of compounding interest that dividend stocks can provide: Investing just $3,000 into dividend-paying stocks over the course of 5 years and re-investing the dividends over the course of 56 years will grow to over $1 million (based on historic 11% annual returns). Most people probably aren't thinking that far out, but consider the fact that we're talking about just a $3,000 total investment. Now think about what you can accomplish if you put that much (or more) to work, year after year!
The Latest Real Estate Data (Not So Bullish)
According to the just released data on new home sales, the average price for new homes fell to the lowest level since September 2003. Almost half of all home sales in October were under $200K, and about 80% of home sales were under $300K. This point marks the lowest percentage under $300K since November 2002. Also just this morning, the S&P/Case-Shiller U.S. National Home Price Index, which covers all nine U.S. census divisions, recorded a 3.9% decline in the third quarter of 2011 over the third quarter of 2010.
One other crazy real-estate related note from yesterday's "Cyber-Money" mania. Dominion Homes, a home builder with a large presence in Ohio and Kentucky decided to take new home prices down quite dramatically. Their biggest deal was for homes priced originally at $250K, reduced to $169,900 for its Cyber Monday special.
These are not healthy real estate anecdotes, when you are considering the news from an investment standpoint. I stand by the idea of looking at your home as a place you love to live in rather than an investment asset. Now if you own and live in a multi-unit property, then it would be considered an investment. For most property owners, however, that isn't the case.
The bottom line? Enjoy your home, but look at assets that produce income to generate long-term wealth. For us that means quality dividend-paying stocks is the go-to place to get started!
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