Thoughts on deflation

First of all, I don’t think deflation is gonna happening. But what if there IS a deflation in the near future?

Buy properties for income purpose, not for future appreciation. When I look at a prospective property, I assume the asset value does not appreciate at all, and then project what kind of cash flow I can get. According to my criteria, I want to buy a property that even if I only collect 2/3 of the rents, I still break even. That's the kind of safety margin I want to have. (And that pretty much excludes condos and single family houses). Be selective. Don't just buy property for buying property's sake. Choose properties close to major cities, or close to big schools, for example. In some areas it may not make sense to buy properties at all.

Have some “cash” available on hand. My favorite is equity line of credit. I have $50K equity line of credit on my primary residence. That's the emergency fund I want to maintain at all time.

By doing those, even if there is a period of deflation in the near future, how bad can it be? My properties are still producing decent incomes, and I still have a lot of cushion. And when a property is producing good income, there is a floor of valuation, isn't it?

Ok, some people may argue if things get really bad, like no tenant is able to pay rent etc. Are you serious? If you keep listening to those Armageddon scenarios, then what difference does it make no matter what you do? Some people are predicting Dow Jones is gonna fall to 1000. Come on, keep in mind that Dow is a price weighted index, the current divisor of Dow is 0.132319125, if Dow goes to 1000, each of its components on average will be $4 to $5, how likely is that? Or if the end of world really occurs, then nothing matters :-) I think reading all those sensational predictions are meaningless, and in some sense, harmful to both of your health and wealth.

Then there is the question of how long a deflation lasts. 10 years? 20 years? People often point to Japan as a primary example of long lasting deflation. But actually the major part of deflation occurred in the early part, and then it has been a long period of stagnation. Also keep in mind there are major differences between Japan and US: Japanese's population is shrinking not growing, Japanese's society is less open than US, and Japanese people are way more conservative than Americans. I once met a Japanese guy who had half a million saved and put in the bank CDs!

What to do in the stock market if you don't like buying real estate at all? Well, if you have a long-term time horizon, like more than 20 years, just DCA away in index funds. After deflation there will be inflation, naturally, and the money you DCAed away will look very smart when the next market upturn occurs. Unless you are those 1 out of 10000 people who really knows how to trade (like nonconfusion on this board :-) , I'd strongly advise you against trying to beat the market.

That's all. Thanks for reading :-)

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• 回复：Thoughts on deflation -blocked- ♂ (162 bytes) () 06/09/2010 postreply 15:33:49

• Sure, that's my 1st line of defense -Conehead- ♂ (161 bytes) () 06/09/2010 postreply 15:59:19

• True. But that requires good stock picking ability, right? -Conehead- ♂ (0 bytes) () 06/09/2010 postreply 16:13:26

• :)mmm.... -天下无马- ♂ (725 bytes) () 06/09/2010 postreply 15:50:15

• Well, by your logic, money in the bank is unsafest. -Conehead- ♂ (61 bytes) () 06/09/2010 postreply 15:54:14

• Absolutely. You have not learn that in any countries' -天下无马- ♂ (221 bytes) () 06/09/2010 postreply 15:58:47

• And have you heard BoA in CA was opening people's safe dep. box? -天下无马- ♂ (256 bytes) () 06/09/2010 postreply 16:03:43

• dude, do you have any constructive idea? ;-) -Conehead- ♂ (0 bytes) () 06/09/2010 postreply 16:06:35

• 回复：dude, do you have any constructive idea? ;-) -blocked- ♂ (275 bytes) () 06/09/2010 postreply 16:10:50

• Your wives can kill you and take off with their young lovers!!! -都爱哈哈- ♀ (0 bytes) () 06/09/2010 postreply 16:13:10

• 看看,又人身攻击了不是. :) -天下无马- ♂ (0 bytes) () 06/09/2010 postreply 16:22:18

• 啧啧, 什么样的IQ? 自己将来怎么s的都不会知道 :) -都爱哈哈- ♀ (0 bytes) () 06/09/2010 postreply 16:41:48

• 拿你垫底.:) -天下无马- ♂ (0 bytes) () 06/09/2010 postreply 19:49:13

• I offered my constructive idea day one when this board opened. -天下无马- ♂ (251 bytes) () 06/09/2010 postreply 16:11:53

• You'd better mint a gold toilet. -都爱哈哈- ♀ (0 bytes) () 06/09/2010 postreply 16:13:54

• I have a couple of them in different corners of world. -天下无马- ♂ (47 bytes) () 06/09/2010 postreply 16:17:59

• but you still come here for clues -都爱哈哈- ♀ (0 bytes) () 06/09/2010 postreply 16:39:03

• Not from clueles like you. :) I said, I only observe. -天下无马- ♂ (65 bytes) () 06/09/2010 postreply 16:45:11

• You can observe much better from 流坛, Mr. Clueless. -都爱哈哈- ♀ (0 bytes) () 06/09/2010 postreply 16:50:29

• See this story. :) -天下无马- ♂ (60 bytes) () 06/09/2010 postreply 16:18:55

• Banks can close your HELOC any time -越王剑- ♂ (49 bytes) () 06/09/2010 postreply 15:51:35

• They will do more down the road. :):) -天下无马- ♂ (316 bytes) () 06/09/2010 postreply 15:55:35

• As I said, Armageddon thinking leads you to nowhere. -Conehead- ♂ (67 bytes) () 06/09/2010 postreply 16:02:06

• It only makes u in and out quickly, and hedge against it. -朱88- ♀ (0 bytes) () 06/09/2010 postreply 16:05:56

• Ok, I guess you are another 1 out of 10000 people :-) -Conehead- ♂ (0 bytes) () 06/09/2010 postreply 16:07:58

• Straight win record: sold b4 every market correction -朱88- ♀ (0 bytes) () 06/09/2010 postreply 16:19:22

• Absolutely true. Your cash in any place is worthless. -天下无马- ♂ (195 bytes) () 06/09/2010 postreply 16:06:08

• Well, you actually pointed to a hyper-inflation scenario, not de -Conehead- ♂ (0 bytes) () 06/09/2010 postreply 16:11:26

• Before there will be hyper-inflation, there is -天下无马- ♂ (106 bytes) () 06/09/2010 postreply 16:20:51

• what I read 天下无马 post is over and over -比花花还花- ♂ (205 bytes) () 06/09/2010 postreply 16:19:04

• mm. falling is for those dreaming to get rich on Real estate. -天下无马- ♂ (26 bytes) () 06/09/2010 postreply 16:23:51

• so show me your actionable suggestions -比花花还花- ♂ (53 bytes) () 06/09/2010 postreply 16:26:57

• I said my offered my suggestion day one on this board. -天下无马- ♂ (73 bytes) () 06/09/2010 postreply 16:29:25

• ok. what to search?? -比花花还花- ♂ (124 bytes) () 06/09/2010 postreply 16:34:41

• hope this is the one -比花花还花- ♂ (72 bytes) () 06/09/2010 postreply 16:37:30

• That is good one. Search back in 2007. -天下无马- ♂ (0 bytes) () 06/09/2010 postreply 16:46:29

• Ding! I like what you wrote.... -jy101- ♂ (553 bytes) () 06/09/2010 postreply 16:07:38

• Well, that's actually opportunity for you, isn't it? -Conehead- ♂ (120 bytes) () 06/09/2010 postreply 16:16:39

• I like what you posted. -比花花还花- ♂ (231 bytes) () 06/09/2010 postreply 16:21:31

• Yes, my wife and I have Roth IRAs -Conehead- ♂ (163 bytes) () 06/09/2010 postreply 16:36:29

• I think you are right, especially on the dooming view. -CirrusCloud- ♀ (170 bytes) () 06/09/2010 postreply 16:26:43

• Life goes on doesn't mean your life goes on -越王剑- ♂ (18 bytes) () 06/09/2010 postreply 16:52:08

• In most cases, life goes on only for the small group of -天下无马- ♂ (58 bytes) () 06/09/2010 postreply 19:31:20

• gold won't protect you when people's life is in danger. -729418- ♀ (0 bytes) () 06/09/2010 postreply 19:54:35

• ha.. why do you have to stick around here? for your real estate? -天下无马- ♂ (0 bytes) () 06/10/2010 postreply 21:25:12

• Nice writing. But banks can close your HELOC -sunskitehomes- ♂ (194 bytes) () 06/09/2010 postreply 19:17:17

• Well Said! -va_landlord- ♂ (0 bytes) () 06/09/2010 postreply 20:13:58