Tag: personal finance

Housing

The Bank of England’s Bank Underground blog has two excellent posts on house prices (first this one, then this one). The basic idea is that houses are assets, not goods, since the “goods” consumed is “living”, which is basically a point in time thing.

As the first of these posts points out:

You can’t buy flowers when they are cheap and store them for months until Valentine’s day. Similarly, you can’t store housing services by, say, renting two flats this year and saving one’s rental services for next year. So the price of rents is determined “on the spot” by the current balance of demand and supply of places to live. Add a load of extra people and/or make them richer and the higher demand pushes up rents. Boost supply and rents fall.

Combined with this comes the news that a friend’s parents have moved to Mysore (from Bangalore) for their retirement.

Taking these blogposts, and this piece of news, together, I’m beginning to reconsider my views on housing.

About 7-8 years back, I got “personal finance advice” that one needs to start “saving for retirement” at age 30, and one of the best ways of doing that is to buy a house. I was about to turn 30 around then, and I took this advice seriously enough to invest in an apartment in 2014. Looking at it five years on, I’m not sure buying a house for retirement in your thirties is the best idea.

For starters, India is (still) a fast-growing and fast-changing nation, so I have no clue what are going to be good places to live 10 years down the line (forget 30 or 40, at which point I’ll retire).

Secondly, my needs from a house now are very different from what they will be 30 or 40 years down the line. For example, right now, my daughter’s school is a “fixed point” (assuming I don’t want to change that), and I need a house that isn’t too far from there. As she grows up and grows out of school, this will cease to be a factor.

Similarly, the work that I do demands a certain pattern of travel in the city, and that again guides my choice of place to live. This is likely to change as the years go by as well.

Then, what I need from my house and my surroundings are likely to change as well. For example, I might want peace and quiet right now, and might be willing to take my car everywhere. At some other point in time, I might place a higher premium on shops in a walkable distance. Similarly, my preferences on entertainment activities might change as well.

Taking all this into account, making a housing decision now on where I want to live 15-20 years down the line is futile. There are simply too many variables and any decision I take now will only lock me in to something that is possibly not optimal.

From that point of view I need to look at my needs over the next 10-15 years (when things will change, but maybe not by that much) to make my current investing decisions. This includes rent/buy/sell decisions, taking into account whatever I’m optimising for now, and will in the next few years. And if I’m setting aside money to “buy a house for retirement” now, I should simply just focus on saving and growing that money so that I can make an informed decision at a time when it matters, and matters are more clear.

Asking people out and saving for retirement

As early readers on this blog might be aware of, I had several unsuccessful attempts at getting into a relationship before I eventually met the person who is now my wife. Each of those early episodes had this unfailing pattern – I’d somehow decide one day that I loved someone, get obsessed with her within a short period of time, and see dreams for living together happily ever after.

All this would happen without my having made the least effort on figuring out how to communicate my feelings for the person in question, and that was something I was lousy at. On a couple of occasions I took a high risk strategy, simply approaching the person in question (either in person or online), and expressing my desire to possibly get into a long-term gene-propagating relationship with her.

Most times, though, I’d go full conservative. Try to make conversation. Talk about banal things. Talk about things so banal that the person would soon find me uninteresting and not want to talk to me any more; and which would mean that I had no chance of getting into a relationship – never mind “long-term” and “gene-propagating”.

So recently Pinky the ladywife (who, you might remember, is a Marriage Broker Auntie) and I were talking about strategies to chat up people you were interested in (I must mention here we used to talk about such random stuff in our early conversations as well – Pinky’s ability to indulge in “arbit conversations” were key in my wanting to get into a long-term gene-propagating relationship with her).

As it happens with such conversations, I was telling stories of how I’d approach this back in the day. And we were talking about the experiences of some other people we know who are on the lookout for long-term gene-propagating relationships.

Pinky, in one of her gyaan-spouting moods, was explaining why it’s important that you DON’T have banal conversations in your early days of hitting on someone. She said it is important that you try to make the conversation interesting, and that meant talking about potentially contentious stuff. Sometimes, this would throw off the counterparty and result in failure. But if the counterparty liked the potentially contentious stuff, there was a real chance things might go forward.

I might be paraphrasing here, but what Pinky essentially said is that in the early days, you should take a high-risk strategy, but as you progress in your relationship, you should eschew risk, and become more conservative. This way, she said, you maximise the chances of getting into and staying in a relationship.

While I broadly agree with this strategy (when she first told me this I made a mental note of why I’d never been able to properly hit on anyone in the first place), what I was struck by is how similar it is to save for your retirement. 

There are many common formulae that financial advisors and planners use when they help clients save for retirement. While the mechanics might vary, there is a simple principle – invest in riskier securities when you are young, and progressively decrease the risk profile of your portfolio as you grow older. This way, you get to maximise the expected portfolio value at the time of retirement. Some of these investment strategies are popularly known as “glide path” strategies.

Apart from gene propagation, one of the purposes of getting into a long-term relationship is that there will be “someone who’ll need you, someone who’ll feed you when you’re sixty four”. Sixty four is also the time when you’re possibly planning to retire, and want to have built up a significant retirement kitty. Isn’t it incredible that the strategies for achieving both are rather similar?