Many people do not see their homes as an investment; but the reality is that your home may be your most important investment. Over the years, we have often learned the hard way that having too much money in the stock market is not the best idea. Yes, the stock market today is at a record high; but it seems that every ten years or so, we see a major downturn in the stock market. Certainly, anyone 60 and older should be in conservative investments to prevent major losses should the stock market take a tumble. There are age adjusted mutual funds that get more conservative as someone grows older, which may make the most sense in order to protect assets if the market does fall dramatically.
Just maybe your home should represent 50% of your overall portfolio to create balance. As it happens right now both the stock and real estate markets are strong. But it does not always happen that way. The reason both are strong is because interest rates are so low. When interest rates go up many will switch from stocks to bonds to secure a guaranteed return on investment of 3% or more. When that happens stocks prices will go down. However, real estate works a little differently. Real estate is very much predicated on interest rates as well. So as mortgage interest rates go up, home prices are moderated. But, real estate is also dependent on both supply and demand and what is happening in the local economy.
If there are more buyers than sellers, real estate prices go up. If there are more sellers than buyers, real estate prices go down. So states or areas with strong economies that are growing will see increases in real estate values. States that are not growing usually because of high taxes and regulations generally will see less real estate value appreciation.
Most important, every time you make a mortgage payment you are growing equity in your home. Over the years, if you have not used your home as a piggy bank to make purchases by refinancing and taking equity out of your home, you will pay off your home. Once that happens, you will have options related to downsizing or moving to a lower cost area. And, since you can deduct mortgage interest on your home with a mortgage up to $750,000, it will cut your income tax liability so the cost of owning a home is diminished. You need to look at your home as an investment and important part of your portfolio. It is just another place to put money; but in this case, you can live in it too.
