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08 Feb 2013, 00:02
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.”
The argument claims that 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. Stated in this way the argument fails to mention several key factors, on the basis of which it could be evaluated. The conclusion relies on assumptions, for which there is no clear evidence. Therefore, the argument is rather weak, unconvincing, and has several flaws.
First, the argument readily assumes that when individuals are approaching retirement, these individuals are getting "old". As such, there is a need to "ensure their financial security." However, "retirement" could be rather misleading, as someone much younger could "retire" due to financial freedom. For instance, Ray Lewis, a famous American football player, is retiring from his job at the age of 37. With a net worth of approximately $50 million and at the age of 37, protecting financial security through real estate investment, although sounds like one possible idea, may not sound like the best approach for Ray Lewis. Instead, he can leverage his wealth and relative youth and look into riskier investments, such as the stock market. The argument would have been much clearer if it explicitly stated the age and the financial situation of the population.
Second, the argument claims that a heavy investment in real estate will provide "financial security" for older individuals who are approaching retirement. Now, assuming the average age of retirement in the United States is 65 years old. Around that age, having the financial liquidity is very important, as it is natural for people to get sick as they age. Even if real estate represents a sound investment concept, it is ultimately not a "liquid" investment, as it takes months, if not years, to sell the real estate properties. As a result, being heavily invested in real estate would not be a good idea for older individuals, since their investment would be "tied up" - and they can't readily convert a real estate property to cash if medical emergency hits.
Finally, the argument suggests that investing in real estate represents a "secure" investment. This is again a very weak and unsupported claim as the argument does not consider the housing bubble the United States has been in. In fact, the real estate investment has been anything but secure over the past five years. There are a lot of inherit risks the argument failed to consider, including subprime mortgage crisis, credit defaults, etc. If the individuals nearing retirement were savvy with the stock market, it can be argued that investing in blue-chip stocks would represent a better investment strategy than locking in the money in real estate properties.
In summary, the argument is flawed and therefore unconvincing. It could be considerably strengthened if the author clearly mentioned all the relevant facts. In order to assess the merits of a certain situation, it is essential to have full knowledge of all contributing factors.