Investing 101 | Urban Living
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Investing 101



You may have been thinking of buying a home because mortgage interest rates are at all-time lows, hovering at 3% per year. This is terrific for the real estate market for what is one of the largest economic pieces to a healthy national financial recovery. But what if you're not in the real estate market and just trying to make a good investment on your savings?

What interest are you getting on your savings account right now? The annual percentage rate (APR) quoted from First America Credit Union is 0.10%. If you want to invest in a money market by depositing up to $4,999.99, the APR is 0.15% and for $5,000-$9,999, it's 0.30%. For example, if you deposit $5,000 into a savings account and then contribute $100 per month at 0.15%, you'll earn a whopping $8.32 at the end of a year on your investment. Hell, you could hold a virtual yard sale or sell some clothes at Uptown Cheapskate that would net you more than that savings account ever will!

The Federal Reserve (aka the Fed) is the central bank of the United States. Known as the bank for all the banks in the country, it helps economic growth and keeps inflation in check by controlling interest rates. When banks need to borrow money, they go to the Fed. Depending on what the Fed charges, the bank wanting money will then determine what it will charge its customers for home loans, car loans and credit cards. When the economy isn't doing well, the Fed will typically lower interest rates to help jumpstart a sluggish economy. Conversely, when the economy is growing too fast, the Fed will raise lending rates to banks.

Right now, the Fed may be moving to charge below zero interest rates, which would be a negative interest rate. That would be like if our Fed changed its lending rate from 0.1% to –0.1%. In 2016, Japan adopted this negative interest rate policy to generate economic growth but that has proven to be a dismal failure for what had been the world's second largest economy. This doesn't bode well for our country as the coronavirus pandemic has triggered severe economic distress with substantial unemployment numbers and predictions for massive business bankruptcies and permanent business closings.

How do you make money then if the world is in crisis and our economy sucks? Buying stocks, bonds or annuities are risky for the uneducated investor, especially during a recession. Look hard at buying a primary residence or an investment property. Sure, I'm a Realtor, and I'm biased, but when property values are going up at say 10% a year, that's something to analyze and investigate deeply. A $350,000 home in two years could be worth $424,000 given inflation. That's a gain of $74,000. Maybe you should be in the real estate market?