When it comes to long-term investment vehicles, Americans remain quite fond of real estate. At least that is what an updated study from Bankrate suggests, with 28 percent of surveyed U.S. adults saying that they prefer to invest any funds not needed for a minimum of a decade in real estate. That is more than cash (23 percent), the stock market (17 percent), gold (15 percent), and bonds (4 percent). Despite the high favorability of real estate, any assumptions that owning a home will always be a less risky investment than stocks, bonds, and other less-tangible assets could be hazardous for one’s financial health. This is something that a lot of Americans had to learn the hard way after the housing bubble burst and the “home values only go up” adage was proven wrong.
Indeed, older individuals are especially sensitive to a housing market collapse and may even have to postpone retirement if their homes suddenly become extremely illiquid assets that are rapidly losing value. Further, any retirees without additional savings may be forced to respond to rising medical costs and other large, unexpected expenses by borrowing against the declining value of their home. What is worse is that this may not even be an option for many seniors because a recent report from the Kaiser Family Foundation revealed that an alarming number of older Americans have very little home equity (see below). However, all of this does not mean that people should avoid using real estate as a long-term investment vehicle. Instead, savers must use every tool at their disposal (real estate, 401(k)s, IRAs, etc.) to essentially diversify their retirement assets in the same way that a portfolio of stocks should be diversified. Doing this can lessen their sensitivity to the value of any single retirement asset and in turn help ensure financial security in old age.
Sources: Bankrate, Barron’s, Kaiser Family Foundation
Post author: Charles CouchDisclosures