Some good reading from around the Web.
After this week’s post on historical house prices [1], reader Guy asked if it was sensible [2] to use a Real Estate Investment Trust (REIT) to save for a deposit on a first home.
The big problem with this strategy in the UK is there are no residential REITs!
Some companies have made noises about launching them here, but currently all our REITs invest in commercial property – and the prices of offices and warehouses don’t move in tandem with suburban semis and Rose Cottages.
There are residential REITS in the US, however, and coincidentally Mike at Oblivious Investor looked at this same question [3] from a US perspective this week.
Mike concluded that it’s better to save for your house in cash, warning:
A REIT fund will likely earn you greater returns than a savings account would. But when I say “likely” here, all I mean is “greater than 50% probability.” It’s not at all something you can count on. And it makes the worst-case scenario significantly worse (home prices increasing while the value of your savings is decreasing — something that can’t happen with a savings account).
Of course, you could always do what I did: Save in cash for years, get fed up with chasing London prices, invest your warchest in shares and bonds and so on, and become obsessed with investment.
That can work – I could buy a modest first London home now without a mortgage. But there are other downsides, such as boring people at dinner parties with your talk of total expense ratios [4] and DIY Guaranteed Equity Bonds [5].
Still, it makes a change from the usual house price chat!
Investment and money blogs
- Review of Thinking, Fast and Slow – Swedroe / CBS [6]
- Idiot noise traders – The Psy-Fi blog [7]
- How I got away with not saving in my 20s – Simple Living in Suffolk [8]
- How much diversification is enough? – UK Value Investor [9]
- Follow the script – Beddard/iii blog [10]
- Everyone should use the overnight test – Bucks Blog [11]
- The liquidation of government debt [PDF] – BIS [12]
- How compounding fees bleed retirement accounts dry – Wade Pfau [13]
- Self-indexing: Cause for cheer or concern? – Index Universe [14]
Deal of the week: Gillian Tett’s excellent dissection of the financial crisis, Fool’s Gold, now costs just £4.99 on Kindle [15]
Mainstream media
- Bond fund managers face a scary future – Wall Street Journal [16]
- Gold bulls driven by emotions – Wall Street Journal [17]
- Rich hedge fund managers, poor clients – The Economist [18]
- How ‘flippers’ made the US property boom/bust worse – Slate [19]
- Why we shouldn’t guarantee all bank deposits – Salmon/Reuters [20]
- UK government to tighten screw on top pay – FT [21]
- Cash offers for current account switchers – FT [22]
- Fund manager success is down to luck – Merryn/FT [23]
- Mortgage squeeze fuels surge in buy-to-let – Telegraph [24]
- Virgin launches ‘gimmick-free’ savings accounts – Telegraph [25]
- Gold mining shares target rich seam – Independent [26]
- Five questions on becoming self-employed – Independent [27]
- There’s never been a better time to change careers – The Guardian [28]
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