real estate

Home Sweet Asset

A home is a valuable and versatile financial tool that can help you increase your wealth.

We all know the well-worn truism that owning a home is a key part of the American dream. The belief has deep roots that hark back to one of the main reasons our forebears left the old country: to become property owners, which was the key to freedom and financial in­dependence. My great-great grand­father left Ireland in 1847, traveled to Wisconsin and homesteaded 600 acres of land on which the melting glaciers had deposited rich, loamy soil. The land he farmed and wealth the family nurtured was passed down through the generations—and just a little of it trickled down to me and helped me buy the house my wife and I live in now.

A powerful tool. The home-as-American-dream mythology has a personal finance corollary: that your home is your biggest investment. That principle is being challenged in the 21st century, as shifts in the way many of us view homeownership and even how we save for retirement are changing the perception that owning a home is the ultimate financial goal. Millennials burdened by student loan debt and daunted by steep starter-home prices are losing interest in owning a home, studies show. And your biggest asset may well be your IRA or 401(k), not your home equity.

Even so, a home is likely to be the most expensive purchase you’ll ever make, and it’s a valuable and versatile financial tool that can help you increase your wealth. That’s why every year Kiplinger reports on housing market and mortgage rate trends. We also include a table of home prices in the 100 largest metro areas in the U.S.

Many Americans are still traumatized by the housing boom and bust, when home prices nationwide tumbled. (A number of markets still haven’t returned to pre-crisis levels, as our table shows.) But investors and homeowners alike were guilty of excesses, and we have returned to more-realistic expectations—that is, over the long term, a home will likely appreciate slightly above the rate of inflation. Meanwhile, homeownership serves as a forced savings plan, as you first stash money for a down payment and then build equity with every mortgage payment you make. And a home is an excellent tax shelter for most of us, although the new tax law limits deductions for interest on mortgages.

In our house, after years of living with a tiny galley kitchen that I’m guessing was last updated in the ’70s, my wife and I are finally renovating the kitchen, dining room and basement. To finance the work, we tapped our equity with a home equity line of credit. That will create cash flow while we wait to sell some stock, when the profits qualify for lower capital gains tax rates.

The renovations may ultimately help our home’s resale value, but the main reason we’re doing the work is to enjoy an updated, more energy-efficient home and make it more inviting for family and friends. And that is my interpretation of the American dream.

Investing in the planet. Our cover story this month is about buying stocks, bonds, and mutual and exchange-traded funds that take advantage of the hottest new Wall Street theme: sustainable investing. Big companies (Amazon, Google and Microsoft, to name just a few) and billionaires (Jeff Bezos, Bill Gates) have hopped on board the search for alternative energy, smart recycling technology and other ways to help the environment. For those of you who would like to do the same—and make some money, too—we found some good opportunities.

Most Popular

The Wrong Way to Achieve Wealth
personal finance

The Wrong Way to Achieve Wealth

For some down-to-earth, basic advice on money and life, I have a book to recommend: “Your Total Wealth: The Heart and Soul of Financial Literacy.”
April 17, 2021
Child Tax Credit 2021: Who Gets $3,600? Will I Get Monthly Payments? And Other FAQs
Coronavirus and Your Money

Child Tax Credit 2021: Who Gets $3,600? Will I Get Monthly Payments? And Other FAQs

People have lots of questions about the new $3,000 or $3,600 child tax credit and the advance payments that the IRS will send to most families in 2021…
April 14, 2021
2021 Child Tax Credit Calculator
Tax Breaks

2021 Child Tax Credit Calculator

See how much money you'll get in advance under the new child tax credit rules for 2021.
April 14, 2021

Recommended

12 Cheapest Small Towns in America 2021
real estate

12 Cheapest Small Towns in America 2021

Affordable small towns aren't necessarily the best places to live for everyone, but each cheap small town on our list has its charms.
April 15, 2021
What You Need to Know about College 529 Savings Plans
529 Plans

What You Need to Know about College 529 Savings Plans

Do you know how much you’re able to contribute or what the funds could be used to pay for? How about how contributing affects your taxes? Check out th…
April 14, 2021
37 Ways to Earn Extra Cash in 2021
business

37 Ways to Earn Extra Cash in 2021

We flag a wide variety of cool side hustles to earn bonus bucks to cover expenses expected and unexpected as we begin to emerge from the pandemic lock…
April 8, 2021
This Hot Housing Market with Daniel Bortz
Becoming a Homeowner

This Hot Housing Market with Daniel Bortz

Home sales and prices have been on a tear and are forecast to continue to rise in 2021. Whether you're hoping to sell, buy or refi, contributing write…
March 31, 2021