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Financial
Focus
Provided by Michael J Haynes
Edward Jones Investments
Don't
Count on Home as a ``Growth''
Investment
If
you've owned your home for many years, the
chances are pretty good that it's
increased in value - perhaps
substantially. However, even if that's the
case, don't assume that it will continue
appreciating to the point where you can
count on it to help support your
retirement and other long-term
goals.
It
can be quite tempting to look at your
house as an investment - and a positive
one, at that. In fact, American homes have
appreciated, on average, slightly more
than 6.3 percent a year from 1968 through
2002, according to the National
Association of Realtors. Of course, your
home's value depends, to a large extent,
on the neighborhood in which you live. But
even if your home has more or less tracked
that 6.3 percent figure - certainly a
decent return - there's no guarantee
you'll make steady gains in the years
ahead. We've seen plenty of "hot'' real
estate markets that have gone cold.
Unfortunately,
many people view their homes as their
chief "growth'' vehicle for the future.
Toward that end, they pour a lot of money
in big remodeling projects, assuming they
will greatly increase the value of their
homes. But the fact is that, with many
home improvements, you may not even recoup
the costs, much less add to the sale price
of your house. If you are going to invest
money in your home for the purposes of
adding to its value, you're probably
better off by taking care of the
``basics'' - applying a new coat of paint,
fixing the roof, etc. - rather than adding
"luxury'' items, such as a hot tub or
swimming pool, which may not seem
desirable to prospective buyers.
Still,
you shouldn't totally ignore your home as
a financial resource. For example, if you
need either a lump sum or liquid source of
funds, you might want to consider taking
out a home equity loan or line of credit.
(Before you take on this type of debt,
though, make sure that you can handle the
payments, because you are using your house
as collateral. Make sure you talk this
over with your investment professional.)
You can usually find competitive rates on
home equity loans and credit lines - and
the interest may be tax-deductible. And by
using the equity you've built in your home
to help meet your needs for cash, you can
avoid dipping into your savings and
investments.
Those
investments - stocks, bonds and other
securities - are the key to your future.
How you choose to spread your dollars
among these assets will depend on your
risk tolerance and your time horizon. As
you invest, you may face short-term
volatility, but, over time, a diversified
portfolio of high-quality investments may
almost certainly reward you more than
hoped-for gains from the sale of your
home.
If
you want to increase the enjoyment you get
from your home, go ahead and make whatever
improvements you want. If you need greater
liquidity, use your home as a "bank'' from
which you can borrow. But don't assume
that your home frees you from the need to
invest - it doesn't. Ultimately, to get
the growth and income you need to help you
achieve your long-term financial
objectives, such as a comfortable
retirement, you'll have to look past your
own front door.
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