<< Chapter < Page Chapter >> Page >

The bottom line on investing in mutual funds is that the rate of return over time will be high; the risks are also high, but the risks and returns for an individual mutual fund will be lower than those for an individual stock. As with stocks, liquidity is also high provided the mutual fund or stock index fund is readily traded.

Housing and other tangible assets

Households can also seek a rate of return by purchasing tangible assets, especially housing. About two-thirds of U.S. households own their own home. An owner’s equity    in a house is the monetary value the owner would have after selling the house and repaying any outstanding bank loans used to buy the house. For example, imagine that you buy a house for $200,000, paying 10% of the price as a down payment and taking out a bank loan for the remaining $180,000. Over time, you pay off some of your bank loan, so that only $100,000 remains, and the value of the house on the market rises to $250,000. At that point, your equity in the home is the value of the home minus the value of the loan outstanding, which is $150,000. For many middle-class Americans, home equity is their single greatest financial asset. The total value of all home equity held by U.S. households was $11.3 trillion at the end of 2015, according to Federal Reserve Data.

Investment in a house is tangibly different from bank accounts, stocks, and bonds because a house offers both a financial and a nonfinancial return. If you buy a house to live in, part of the return on your investment occurs from your consumption of “housing services”—that is, having a place to live. (Of course, if you buy a home and rent it out, you receive rental payments for the housing services you provide, which would offer a financial return.) Buying a house to live in also offers the possibility of a capital gain from selling the house in the future for more than you paid for it. There can, however, be different outcomes, as the Clear It Up on the housing market shows.

Housing prices have usually risen steadily over time; for example, the median sales price for an existing one-family home was $122,900 in 1990, but $294,000 in 2015. Over these 23 years, home prices increased an average of 3.1% per year, which is an average financial return over this time. [link] shows U.S. Census data for the median average sales price of a house in the United States over this time period.

Go to this website to experiment with a compound annual growth rate calculator.

However, the possible capital gains from rising housing prices are riskier than these national price averages. Certain regions of the country or metropolitan areas have seen drops in housing prices over time. The median housing price for the United States as a whole fell almost 7% in 2008 and again in 2009, dropping the median price from $247,900 to $216,700. As of 2015, home values had almost recovered to their pre-recession levels.

Visit this website to watch the trailer for Inside Job , a movie that explores the modern financial crisis.

Questions & Answers

how may I solve arithmetic mean ,,,all example
Cee Reply
what is agriculture
Itoe Reply
simple method of understanding cost concept
Oludare Reply
what is inflation
Christiana Reply
Inflation is a general increase in price levels
Zuko
is the action of inflating something
Abdifatah
inflation is the persistent increase in general price level of goods and services in an economy over a considerable period of time .
Tetteh
inflation is the general increase of a commodity in a particular period of time.
Turay
inflation is a general increase in price levels of commodities
shehu
what are the types of inflation?
Ebrima
inflation is the period of persistent rise in the general level of the price of goods services over time
Emmanuel
we have creeping inflation, demand pull inflation ,cost push inflation, and galloping inflation .
Emmanuel
how can a location of a firm create difference between producers
joy Reply
what is monetary policy
joy
hello
Abdifatah
is a monetary from policy that's authorized of country encharces
Abdifatah
What would you say about the the mobility of enterprise as a factor of production?
Cathryn Reply
how can I connect myself to this Ambrose platform
kanu Reply
I am good and you I am from sierra Leone and I am new her
kanu Reply
u are welcome bro, here is a good platform for you to be
Alie
That i know,thanks bro.
what the main definition of economic
Uhara Reply
Essay about Microsoft
Kwena Reply
what is economics
Julie Reply
what do you mean by means in economics
Julie
economic is the wealth of a country.
Moussa
monetary policy is refer to as being expansionary or contractionary.
Abdul
pls who can help me to explain money market and capital market
Au
money market is base on short term loan which is within one year period while capital market is long term loan more than one year...
Muhammad
money market is a market were short term loans are dealt with while capital market is a market were long term loans are traded
Ebrima
What is mean by monetory policy
Lovely
monetary polices are rules that control the rate of monetary exchange in an economic as a whole.
Ebrima
wealth of the nation
Uhara
important of unemployment
Otwe Reply
Important of unemployed
Otwe
important?
Aneela
what is meaning scarcity
ABDULLAHI Reply
Scarcity can be define as human wants to goods,services,resources for exceed of what is available
Uhara
hi guys
Ibrahim
How are you
Abdul
Can be defined as the inability to get everything we want
Zuko
less ability for the available goods and services that's on sale
kanu
what is the definition of money market
joy
what is consumer
Brenda Reply
how do consumer help people
Brenda
by export trading
Jayah
How do you mean Jayah
Danjuma
what is different between price and quantity
Yakubu
what is MRS
Rashid
definition of economics according to Adam Smith
Ijeoma Reply
economic is a wealth of nation
Au
in the view of Adam Smith economics is the study of activities of people in production of wealth
suresh
Economics is any human activity that lead to the provision of substance and or amassing wealth.

Get the best Principles of economics course in your pocket!





Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
Google Play and the Google Play logo are trademarks of Google Inc.

Notification Switch

Would you like to follow the 'Principles of economics' conversation and receive update notifications?

Ask