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 :-)
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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