The worst investment advice I ever received

[alan1]

The worst investment advice I ever received was "Your house is your biggest investment". I heard that some 20 years ago when I was buying my first house. I still live in that house by the way.
I heard it from my family. I heard it from my friends. I heard it from my real estate agent. I heard it from my banker. I heard it from my co-workers. I still hear it from all kinds of people.

I didn't follow their advice. Instead, I bought the cheapest house that I and my family could comfortably live in. The way I saw it, home ownership was my avoidance of housing cost inflation. And here it is, about 20 years later and my mortgage payment is $500 a month. The house next door to me is smaller than mine and currently rents for $1100 a month. I'd say I did a good job of avoiding housing cost inflation. Instead of having an $850 a month mortgage 20 years ago (which the bank said I could afford), I opted for $600 a month (re-fi a few years back reduced the monthly payment without extending the length of the mortgage) and I put the extra money aside towards my retirement. Over the past 20 years I've spent a heck of lot more on my house than I have invested for retirement.

Guess which is worth more, my house or my retirement portfolio? If you said my retirement portfolio, move to the head of the class. In fact, my combined 401(k) and IRA accounts are worth about 6 times the equity in my house. By the time I finish paying for my house, including interest I will have paid about about 2.4X the original house price and the house will be worth (my estimate) about 3X the original price. And my costs don't include maintenance and repairs. I'd hardly call that an investment. Like I said, a hedge against housing inflation.

If your home is your largest investment, chances are you will retire without enough money to live the rest of your life in a comfortable lifestyle. My advice to young people is to skip the conventional advice that a home is good investment and focus more on your retirement portfolio.

 

[SmarterThanTheAverageBear]

I have a 1965 Shelby GT350 that is my retirement. One just like it sold at auction last month for just shy of $800K. I'm hoping to see it climb to seven figures, then it is sold.

My dad told me I was crazy when I paid $5K for it back in 1988.

 

[American Horse]

I don't think you have really completely run the numbers. You should perhaps add into your imputed value all the rent you would've paid for a like property all those years for a fuller picture if your ROI?

 

[Toro]

Right now, buying a house with a mortgage is a better bet than buying stocks for the long run.

Houses are cheap in most cities whereas most stocks are expensive.

 

[EdwardBaiamonte]

The worst investment advice I ever received was "Your house is your biggest investment". I heard that some 20 years ago when I was buying my first house. I still live in that house by the way.
I heard it from my family. I heard it from my friends. I heard it from my real estate agent. I heard it from my banker. I heard it from my co-workers. I still hear it from all kinds of people.

I didn't follow their advice. Instead, I bought the cheapest house that I and my family could comfortably live in. The way I saw it, home ownership was my avoidance of housing cost inflation. And here it is, about 20 years later and my mortgage payment is $500 a month. The house next door to me is smaller than mine and currently rents for $1100 a month. I'd say I did a good job of avoiding housing cost inflation. Instead of having an $850 a month mortgage 20 years ago (which the bank said I could afford), I opted for $600 a month (re-fi a few years back reduced the monthly payment without extending the length of the mortgage) and I put the extra money aside towards my retirement. Over the past 20 years I've spent a heck of lot more on my house than I have invested for retirement.

Guess which is worth more, my house or my retirement portfolio? If you said my retirement portfolio, move to the head of the class. In fact, my combined 401(k) and IRA accounts are worth about 6 times the equity in my house. By the time I finish paying for my house, including interest I will have paid about about 2.4X the original house price and the house will be worth (my estimate) about 3X the original price. And my costs don't include maintenance and repairs. I'd hardly call that an investment. Like I said, a hedge against housing inflation.

If your home is your largest investment, chances are you will retire without enough money to live the rest of your life in a comfortable lifestyle. My advice to young people is to skip the conventional advice that a home is good investment and focus more on your retirement portfolio.

I live in a very desirable region so did better than most I'm sure. My house has doubled in value over the last 15 years, but I"ve put a ton of money into it and paid huge taxes. It may average out to a 3% return which is no better than many other investments, but it is a form of enforced savings which is perhaps its best advantage.

 

[alan1]

I don't think you have really completely run the numbers. You should perhaps add into your imputed value all the rent you would've paid for a like property all those years for a fuller picture if your ROI?

Oh, don't misunderstand me. I agree that buying the house was better in the long run than paying rent. But it certainly isn't my biggest investment. That was my point.

 

[alan1]

I live in a very desirable region so did better than most I'm sure. My house has doubled in value over the last 15 years, but I"ve put a ton of money into it and paid huge taxes. It may average out to a 3% return which is no better than many other investments, but it is a form of enforced savings which is perhaps its best advantage.

The average S&P market return from 2003 to 2013 is 9.1%, that would double your investment in 9 years. At 9.1% growth for 15 years you would more than triple your investment.

 

[alan1]

Right now, buying a house with a mortgage is a better bet than buying stocks for the long run.

Houses are cheap in most cities whereas most stocks are expensive.

Right now, interest on a mortgage is cheap. For the long haul it makes to buy a house as opposed to renting. It also makes sense to buy the cheapest house you are comfortable with and invest the difference. On average, over the long term, houses don't appreciate 9-10% annually but the stock market does. And houses certainly don't appreciate 9-10% annually above the (current) 4% interest on the mortgage.

 

[JakeStarkey]

worst investment advice : privatize your SS

Pay off your home when you buy it, and you will automatically earn a 300 to 400% increase after 20 years

 

[Freemason9]

I don't think it is appropriate to view typical home ownership as an "investment." In general, homes are dwellings and are illiquid. In a financial event that requires home sales, it is usually a circumstance that requires rapid liquidation at (therefore) a price under the normally assessed "value."

Homes are places to live. Period.

 

[EdwardBaiamonte]

. On average, over the long term, houses don't appreciate 9-10% annually but the stock market does.

"You're thinking the 20th Century was some sort of aberration? Maybe, but Dr. Siegel, in his widely read book Stocks for the Long Run, finds similar returns for the past two centuries—a compounded, inflation-adjusted 6.8 percent, in fact, for the period 1801-2006. For that matter, according to Morningstar, there is no single rolling 20-year period going back to 1926 when the S&P did not produce a positive annualized return, net of inflation. It got pretty meager at times—0.84 percent for 1962-81—but the average 20-year return is 7.25 percent."
Is the 7 Percent Return for Stocks Extinct - US News


Also, 7.25% may way over state actual returns given that the stocks in any index change; only for the better. A company going bankrupt or declining in importance will be removed from the index thus creating a 100% upward bias in the index that your personal portfolio will not have.

 

[SteadyMercury]

A company going bankrupt or declining in importance will be removed from the index thus creating a 100% upward bias in the index that your personal portfolio will not have.

Invest in the index. Bonus = really low fees and relatively tax efficient.

 

[SteadyMercury]

The worst investment advice I ever received was "Your house is your biggest investment".

To be fair at the time you purchased that house it was your biggest investment, and it was highly leveraged. In terms of amount of single investment transaction vs. net worth/income/whatever the house purchase is probably the biggest.

Guess which is worth more, my house or my retirement portfolio? If you said my retirement portfolio, move to the head of the class. In fact, my combined 401(k) and IRA accounts are worth about 6 times the equity in my house.

Yup, today our house is 8.6% of our net worth. Gets less every year.

 

[EdwardBaiamonte]

A company going bankrupt or declining in importance will be removed from the index thus creating a 100% upward bias in the index that your personal portfolio will not have.

Invest in the index. Bonus = really low fees and relatively tax efficient.

A company going bankrupt or declining in importance will be removed from the index thus creating a 100% upward bias in the index that your personal portfolio will not have. Thus if the average index return for 100 years was 7.2% your real retun might be 2%.

 

[SteadyMercury]

A company going bankrupt or declining in importance will be removed from the index thus creating a 100% upward bias in the index that your personal portfolio will not have.

Invest in the index. Bonus = really low fees and relatively tax efficient.

A company going bankrupt or declining in importance will be removed from the index thus creating a 100% upward bias in the index that your personal portfolio will not have. Thus if the average index return for 100 years was 7.2% your real retun might be 2%.

Invest in the index. Bonus = really low fees and relatively tax efficient

 

[EdwardBaiamonte]

A company going bankrupt or declining in importance will be removed from the index thus creating a 100% upward bias in the index that your personal portfolio will not have.

Invest in the index. Bonus = really low fees and relatively tax efficient.

A company going bankrupt or declining in importance will be removed from the index thus creating a 100% upward bias in the index that your personal portfolio will not have. Thus if the average index return for 100 years was 7.2% your real retun might be 2%.

Invest in the index. Bonus = really low fees and relatively tax efficient

dear, try to respond to what I wrote or admit you lack the IQ to understand it.

 

[saveliberty]

Can I do my dishes in your 401(k)?

 

[Zander]

Your home is not an investment. It is a place to live.

That being said, investment real estate has created tremendous wealth for a great deal of people, myself included.

Stocks and bonds are a place to put the money you make in real estate!

 

[Manonthestreet]

Basic 1 bedroom cheesebox in N mpls goes for $250.....anybody who paid that price will be lucky to break even on sale much less make a profit. Only ones who profit from "your house is your biggest investment" are Realtors and mortgage co's........

 

[SteadyMercury]

dear, try to respond to what I wrote or admit you lack the IQ to understand it.

I tried, but unless someone hires me as a teacher or special ed worker I don't have time to speak to someone with the mind of an 8 year old. You're a lost cause, so nevermind, go play with your toys.