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Money comes, and money goes.
Heres what he said are themost common financial mistakes and how to avoid them.
Shiller said, Housing is traditionally not viewed as a great investment.
It takes maintenance, it depreciates, it goes out of style.
All of those are problems.
And theres technical progress in housing.
So, the new ones are better …
So, why was it considered an investment?
That was a fad.
That was an idea that took hold in the early 2000s.
And I dont expect it to come back.
Not with the same force.
So, people might just decide, yeah, Ill diversify my portfolio.
Ill live in a rental.
That is a very sensible thing for many people to do.
Johnson agreed with Shiller.
Many people mistakenly believe that real estate is a good and safe investment, said Johnson.
They fall prey to stories of [real estate] values rising dramatically over long periods of time.
What they dont realize is that from 1890 to 1990 the inflation-adjusted appreciation inU.S.
housingwas just about zero.
The decision to buy or rent a home is essentially a financing decision.
Succumbing To Lifestyle Creep
Another mistake Johnson noted is letting your spending increase when your income increases.
What happens is they are unable to improve their financial condition because they spend everything they make.
That is, continue to live the same lifestyle you led before receiving a raise and invest the difference.
You will have invested a total of $150,000 and have earned $672,000 from thoseinvestments.
Unfortunately, many people allocate retirement savings to money market accounts or low-risk bonds.
The surest way to build wealth overlong time horizonsis to invest in a diversified portfolio of common stocks.
Dollar-cost averaging into an index mutual fund or ETF is aterrific lifelong strategy.
Savvy investors should be 100% invested in stocks and have no bond exposure.
Perhaps the worstfinancial mistake anyone can makeis turning down free money, said Johnson.
The opportunity loss of not electing to participate in an employer matching program is substantial, he continued.
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