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Warren Buffett’s $10,000 Gamble — He Gave His Wife The Choice To Risk It All On A House And Wipe Out Their Capital Or Invest For The Future And Wait To Buy A Home

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In the context of today’s economic challenges, such as high interest rates, supply issues and elevated home prices, the wisdom shared by Berkshire Hathaway Inc. CEO Warren Buffett at the company’s 1998 annual shareholders meeting remains relevant. A question from audience member Nelson Errata about the timing and strategy for buying a house elicited a response that provides valuable insight into investment and personal finance decisions.

Buffett shared a personal anecdote about a critical decision he faced early in his marriage. With a starting capital of about $10,000, he presented his wife, Susie, with a choice: They could either use all their capital to buy a house, which would be akin to a carpenter without tools, or they could delay the purchase, allowing him to invest the capital.

His wife chose to wait until 1956, four years after their marriage, to buy a house, which Buffett still owns today. The decision was made when the down payment was about 10% of his net worth, reflecting his desire to use most of his capital for other investment opportunities.

The home he purchased for $31,500, which is now worth approximately $1.4 million, represents a successful investment, but Buffett has suggested that renting could have been more financially beneficial. This viewpoint is relevant today, given high home prices and interest rates, leading many to reconsider the conventional route to home ownership.

For those not ready to purchase a home or seeking to enhance their funds, platforms like Arrived provide an accessible opportunity to invest in real estate without the commitment of a direct purchase. Supported by notable investors like Amazon.com Inc. Founder Jeff Bezos and Salesforce CEO Marc Benioff, the platform allows people to invest as little as $100 in single-family rental properties and gain from rental income and property appreciation​​.

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Buffett’s approach highlights the value of patience, strategic thinking and personal circumstance assessment in making significant financial decisions. His experience with his home purchase decision demonstrates the potential long-term benefits of judicious capital allocation and investment prioritization.

Buffett’s story highlights the importance of balancing investment opportunities with personal needs. He suggested that buying a house is akin to making an implicit investment with a return of around 7% to 8%. He emphasized the need for people to assess their situations. Here are five tips to help you make this decision:

  • Analyze current economic conditions: Pay close attention to the state of the economy, especially interest rates and housing market trends. High interest rates can significantly increase the cost of a mortgage, while supply issues and elevated prices might suggest waiting for a more favorable market.
  • Evaluate your financial health: Consider your financial stability, including income, savings, debt and emergency funds. This assessment will help you determine whether you can comfortably afford a home or if it’s more prudent to wait and continue saving and investing.
  • Long-term financial goals: Reflect on your long-term financial objectives. If your goal is to have a stable home for family life, buying might be the right choice. If your priority is to maximize wealth growth, investing your money might offer better long-term returns.
  • Consider the total cost of homeownership: Remember, buying a home involves more than just the mortgage. Property taxes, insurance, maintenance and potential renovations are additional costs that need to be factored into your decision.
  • Opportunity costs: Understand the concept of opportunity costs — the potential benefits you miss out on when choosing one option over another. If investing your money elsewhere could yield higher returns than what you’d save or gain from buying a house, it might be better to invest.

 

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Tesla shares soar more than 14% as Trump win is seen boosting Elon Musk’s electric vehicle company

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NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.

Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.

“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”

Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.

Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.

Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.

Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.

In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.

The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.

And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.

Tesla began selling the software, which is called “Full Self-Driving,” nine years ago. But there are doubts about its reliability.

The stock is now showing a 16.1% gain for the year after rising the past two days.

The Canadian Press. All rights reserved.

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S&P/TSX composite up more than 100 points, U.S. stock markets mixed

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TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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S&P/TSX up more than 200 points, U.S. markets also higher

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TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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