Belated Financial Advice

Now, here's a drastic change of pace: the deacon giving financial advice. But living as we do in the world, even though as Christians we are not to be of the world, dealing with money is one of those necessary evils. Just let me begin with a warning: anyone who takes financial advice from me is very foolish indeed. Okay, that said, I'd like to share some financial advice I received, very indirectly, several years ago. If you're nearing retirement age or older, it will be of no real use to you, because for you it's too late. But if you're younger and won't be thinking about retirement for a decade or more, you just might find it helpful...or not.

It was in the fall of 2002 and I was driving to work listening to a local talk show on the radio. The host introduced a gentleman whose name I have unfortunately forgotten. All I recall is that he had written several books on investment strategies. After a few general comments the host opened the phone lines for people to call in with their questions.

The first caller could well have been me...but he wasn't. He began by stating that he was in his late fifties and hoped to retire in about five years. His children were grown and his wife had no income since she had never worked outside the home. He had a modest pension coming to him, but the combination of his pension and social security would not be enough for retirement. He also had a 401K, but at the time it had a value of only about $100,000. His only other asset was his house, which had appreciated substantially over the years. His mortgage would be paid off in three years and because of its desirable location his house had a current market value of about $800,000. His question: What do I do over the next five years to maximize my retirement income?

The guest expert didn't hesitate and replied, "Sell your house today, and move into a rental until you're ready to retire. Stash the proceeds into something nice and safe like government bonds and enjoy the ride. You can buy or build your retirement home once you actually retire."

At first there was dead silence, and then the host, the caller, and I all said, "What? Sell the house? In this booming market? You've got to be crazy." Well, okay, I didn't say it, but I thought it.

Ignoring us all, the expert went on calmly, "Okay, hold onto it, and then let me know what it feels like when you can't get $500,000 for your house five years from now. We are nearing the peak of a real estate bubble, the likes of which we've never seen before. It'll burst soon and most folks will suffer because of it. My advice is to help you become one of the few who will benefit." He than added, "Look, you're not a client, so I don't care whether or not you listen to me. Let me just say that over the past six months I have liquidated all my real estate holdings, except for my own retirement home which I built ten years ago and now rent. Too many people think home ownership is sacred, the holy grail of the American dream. It's not. And in tomorrow's market, it will make much better sense to become a renter."

I still thought he was crazy...until I found myself having to retire just a few months later. We sold our large family home in late 2003 at close to the very peak of the market and inadvertently stumbled into all the benefits this expert had touted. Buy low, sell high still apparently works. The key is knowing when those lows and highs will occur. He did. The current owners of that home of ours would have serious trouble trying to sell it today at anywhere near the price they paid me.

And then today while browsing one of my favorite websites -- First Things magazine -- I came across an article that mirrored what my unnamed expert had said over eight years ago. Of course the First Things' article has the advantage of hindsight; while my expert made a true prediction. You can read the article here: Why Renting Your House Is Better Than Buying.

Pretty interesting stuff. Of course I completely lucked out when it came to selling our home on Cape Cod; and then I turned around and built a retirement home which is now worth less than what it cost me. Yes, some of us are slow learners. But that's okay. If I were really clever about money I'd probably care more about it and end up a slave to it. It's a lot harder to be a slave to mammon when you don't have any.

God's peace...