Your Single Best Investment
More often than not, when I ask people what they consider to be their single best investment, without hesitation their answer is “my house”. How about you? Is that how you would’ve answered the question, too? Well, what I’m about to share with you just might surprise you and challenge your thinking.
When it comes to a house, most of us remember what we paid for the home and we remember what we sold the home for, or what its current value is in today’s market. We naturally think the difference is our profit. What we all, myself included, tend to leave out of our analysis, incorrectly I might add, is the ongoing expenses of our home. Once you add back property taxes, insurances, maintenance and repairs, not to mention interest on mortgage payments, into your overall cost and I’ll bet you find, at best, your home has barely kept up with inflation. A well-known economist that specializes in analyzing real estate pretty much says the same thing. He doesn’t feel like he’s done much more than keep pace with inflation if he’s lucky, once he factors back into the cost taxes, insurance, maintenance and repairs on the home he’s lived in the past 30 years.
Why is it that most of us think our home is our single best investment? Well I’m gonna go out on a limb here and suggest it’s because, whether we realize it or not, it’s a long-term investment strategy. You’re not running to the internet everyday to find out what the daily change in your home value is; you probably don’t even do that on a monthly or even a yearly basis. Even if you did, you certainly wouldn’t be running to sell every time there was a blip in the market value of your home. Nope, you just steadily plod along living in your home until it no longer serves a purpose for you.
For myself and my wife, we owned a home that our boys grew up in for the better part of 20 years. Now that’s a long-term investment strategy and truth be told, we are reasonably happy with the outcome, other than as I am writing this, we still need to sell the house. But this will happen in due time.
So this got me to thinking, why is it that very few people when asked the question “what do you consider to be you single best investment?”, very few people talk about their stock portfolio or their investment portfolio. And the only conclusion I can draw is, unlike your home, it’s just human nature to agonize and fret over the changing value of your investment portfolios one day to the next, month in and month out. And in doing so, because these are liquid investments and are easily bought and sold just about any day you want, it’s very easy for your emotions to take over and cause you to buy at the wrong time and sell at the wrong time.
The lesson I’ve learned from talking to a lot of people and asking them the simple question “what do you consider to be your single best investment?” is one of the keys to investing success and probably one of the toughest challenges all investors have. Most investors don’t have a system in place that helps them avoid large losses and keeps their emotions from taking over.
If you don’t have one already, find an investment system that helps you avoid large losses and a system that you can stick with overtime, measured in years, if not decades. If you’ll do this, I think you’ll find that your single best investment isn’t your home but an investment portfolio that puts money to work in high demand areas and avoids weak demand areas all in an effort to avoid large losses. This is one of the secrets to you being able to experience your personal version of an Incredible Retirement, doing what you want, when you want.
