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Response to Augustus (Reply #45)

Mon Feb 9, 2015, 07:57 PM

99. Yes and no

Many financial planners have correctly stated that most people who say that their home is their largest asset don't have many other assets...

... but remember that even though real estate tends to track inflation (over extended periods), that doesn't mean that the investment returns are merely those of inflation. This is because most real estate investments in a primary residence are heavily leveraged... so a 5% increase in real estate values can outperform a 15% return in stock market investments. Such leverage is almost never appropriate for stock market investments, but can be entirely appropriate when purchasing a home... because the cost of the leverage (the after-tax interest on the mortgage) rarely exceeds the alternative (paying rent).

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