Pop quiz, hotshot. Let’s say you had $100,000 on January 1st 2008.
Which of the following “investment” methods took the largest loss in 2008:
- 20% down payment on a $500,000 SFH in King County.
- S&P 500 index fund.
- Cash under the mattress.
…
And the answer is… A!
According to the NWMLS, the median price of single-family homes in King County dropped 9.2% from January to November (the latest data available). When your $500,000 house lost 9.2% of its value you lost $45,978, or 46% of your $100,000 “investment.”
Had you put the money into an S&P 500 index fund, you would have lost $37,585, or 38% over the course of the year.
Also keep in mind that the loss for the home purchase is generously not taking into consideration all the money that was thrown away every month in mortgage interest. At January’s prevailing rate of 5.76%, that is another $22,900 down the drain.
Cash under the mattress wins as the safest investment of 2008. ;^)