Back before 2006, the lead economist of the National Association of Realtors told anyone who’d listen that there was no such thing as a housing bubble.
He meant that housing prices would never appreciate so high that they’d have nowhere to go but down. His theory? Housing prices would stop rising as rapidly as they did in the years from 2000 through 2005. But housing values would never fall.
We all know how wrong this expert was. Starting in late 2006, housing prices did indeed start to fall. By 2008, they’d plummeted. It’s why First American CoreLogic reports today that nearly 25 percent of U.S. homeowners are underwater. They owe more on their mortgage loans than what their homes are worth.
Why bring this up? Only because it’s a perfect example of how you should never place blind faith in the financial opinions and theories of others, even if these people are recognized as experts in their field.
That’s because no one really knows what’s going to happen in the world of finance from one day to the next.
For instance, no one, no matter how much of an expert he or she claims to be, can give you a can’t-miss tip on the next hot stock. No one can guarantee for you that a house in a particular area is guaranteed to rise in value.
There are plenty of “experts” out there who will tell you that they have inside knowledge. They’ll lead you to believe that they’re savants, able to accurately read and predict the future of the markets.
All these people really are, though, is liars. Or, if they truly believe that they can predict the vagaries of our nation’s economy, then they’re delusional.
The best advice you’ll ever receive when it comes to finances and investing is this: Study any investment vehicle you’d like to use. Then be patient. Investments rise and fall in value all the time. Don’t panic when a stock falls and pull your money out. The next week, that stock might soar to new heights. On the other side, if a particular stock’s value suddenly skyrockets, don’t get overexcited and dump money from your other investments into it. That stock can just as easily crash down to earth next month.
Investments are unpredictable. But you can ease some of the stress by only taking on as much risk as you can tolerate. You can also avoid the temptation to look for an expert’s sure thing by practicing patience with your investments.