Q: Our broker's last four stock suggestions, which included Microsoft and Hewlett-Packard, all dropped in value the day after his recommendation. Is this just bad luck? Also, how do you feel about real estate as an investment in the next three years?
F.S., via e-mail
A: It appears that your broker suggested technology sector stocks, which tend to be more volatile and fluctuate more often than other sectors, says Cheryl Burbano, a certified financial planner in Wesley Chapel, Fla. If the price-to-earnings ratio (p/e) of the stock was high at the time of purchase, she says, the stock may have been overvalued and went through what experts call a price correction - an event that laymen brand a loss.
As for real estate, it is very lucrative in most of the United States right now because of low interest rates on mortgages, Ms. Burbano says. But it is a matter of opinion whether this bull run is sustainable. If inflation is high, for instance, mortgage interest rates will start to rise, making the housing market less affordable to first-time home buyers and the middle class in general, she says. Demand would decrease and that would generally mean lower prices, or at a minimum a slowing in the rise of housing values.
There are other ways to invest in real estate besides direct purchase of land or buildings, says Burbano. You can also hold real estate in your portfolio by investing in a Real Estate Investment Trust (REIT) or in a mutual fund that holds shares in different types of REITs.