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Location: Australia
GPA: 3.37
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14 Sep 2011, 03:10
ESSAY QUESTION:
The following appeared in the personal finance section of a popular magazine:
“The average price of an acre of land in the United States is now 50 times what it was in 1970, and nearly 200 times what it was in 1920. The nation’s population is projected to keep increasing, even as the amount of land remains constant. Therefore, people who are approaching retirement should invest heavily in real estate in order to ensure their financial security.”
Discuss how well reasoned you find this argument. In your discussion be sure to analyze the line of reasoning and the use of evidence in the argument. For example, you may need to consider what questionable assumptions underlie the thinking and what alternative explanations or counterexamples might weaken the conclusion. You can also discuss what sort of evidence would strengthen or refute the argument, what changes in the argument would make it more logically sound, and what, if anything, would help you better evaluate its conclusion.
YOUR RESPONSE:
The argument states that people who are approaching retirement should invest heavily in real estate in order to ensure their financial security. Stated in this way, the argument is quite watery, and relies on multiple assumptions to draw a conclusion. The main assumptions that the argument relies on are continuation of price and population trends, and the singular suitability of real estate as an investment option for people approaching retirement
Firstly, the conclusion relies on the assumption that past trends will continue on in to the future. Although the basic theories of supply and demand are commonly accepted, it cannot be known with certainty what may happen in the future. An example of past trends becoming unstuck was the global financial crisis (GFC). During the GFC, financial markets witnessed the collapse of many well established blue-chip companies that experienced consistent growth over a long period of time. The fact that the GFC was a highly unusual, rare and sudden event shows that making future investment decisions based on past trends alone is risky business. This goes to show that investors cannot simply take future performance for granted, based on a history of success.
Secondly, the argument assumes that the only way that people approaching retirement could ensure their financial security is through means of investing heavily in real estate. While investments in real estate have are known to be relatively safe investments, when an investor puts all of their eggs into one basket, they expose themselves to an unnecessary level of risk. The author could have strengthened their argument by saying “it would be wise of people approaching retirement age to consider adding real estate to their diversified investment portfolio”. This assumption also fails to recognise different types of investors with different risk appetites.
Finally, the author doesn’t adequately explain the circumstances in which price increases materialised, namely, rate of population growth. By using the “supply versus demand” argument, the author assumes that the rate of population growth will be constant. It is a known fact that the proportional rate of population growth experienced in the 1920’s to 1970’s, and even between the 1970’s and now, is far greater than what will be expected over the next generation. This is mainly due to migration patterns, improvement in socio-economic conditions, and improvements in technology.
Although a decision to invest in real estate would be a sound one, one cannot base this decision solely on this author’s argument. The author’s argument is flawed and unconvincing to a critically thinking readership. The author’s argument could be strengthened by clearly explaining assumptions, and mentioning more facts, such as supporting historical trends and data with tangible statistical evidence.
(443 words - 24mins - would rather save 6 mins of juice for the Quant / Verbal sections!)
It felt easy to write, and the easy flowed well - I just need a second opinion.
I'd be happy to take a 5 on the AWA, as long as I saved enough energy to get a 700 on the GMAT.