— Originally published in FLL Issue #35 • Content provided by Mark Vergenes / Mirus Financial Partners
Should I buy a home or continue renting?
Most people face this question at some time in their lives. Buying a home is part of the American dream. It’s also one of the biggest financial investments you’ll ever make.
One of the main advantages of buying a home is that you build equity in your property. For example, if you paid rent at $1,000 per month for 10 years, you would have spent $120,000 on rent with nothing to show for it. However, if you had purchased your home and made $1,000-per-month mortgage payments for 10 years, you would have paid off a sizable portion of your mortgage. And if you decided to sell your home, you might make a profit.
Before buying a house, remember that your lending institution will want proof that you have money saved for the down payment and closing costs. If your savings won’t cover these costs, you should probably continue to rent for the short term while establishing an ambitious savings plan.
Even though buying allows you to accumulate a valuable asset, renting also has its advantages. You may spend less time doing maintenance than if you owned the home, and you could relocate to another home more easily. In addition, you would probably pay less per month for rent than you would for a typical mortgage payment. This would leave you with more money to spend on whatever you choose. Remember, it’s not easy to buy and own a home. Many people continue to rent throughout their lives. But if you do decide to purchase, start saving now so that someday you will own the home of your dreams.
How much of my portfolio should I keep in stocks?
Financial professionals advise that if you are saving for retirement, the younger you are, the more money you should put in stocks. Though past performance is no guarantee of future results, over the long term, stocks have historically provided higher returns and capital appreciation than other commonly held securities. As you age, you have less time to recover from downturns in the stock market. Therefore, many planners suggest that as you approach and enter retirement, you should begin converting more of your volatile growth-oriented investments to fixed-income securities such as bonds.
A simple rule of thumb is to subtract your age from 100. The difference represents the percentage of stocks you should keep in your portfolio. For example, if you followed this rule at age 40, 60% (100 minus 40) of your portfolio would consist of stock. However, this estimate is not a substitute for a comprehensive investment plan, and many experts suggest modifying the result after considering other factors, such as your age, risk tolerance, financial goals, and the fact that individuals are now living longer and may have fewer safety nets to rely on than in the past.
For example, if you accept an early retirement package at age 57, it’s feasible that you’ll be living off your retirement fund for as long as 30 years or more. That long time frame gives your portfolio greater potential to recover from any unexpected downturns in the markets. And with inflation and the rising costs of medical care, you are likely to need more growth over 30 years than most fixed-income securities typically deliver. You may want to keep a portion of your portfolio invested in stocks well into your retirement years.
If you’re investing for something other than retirement, the simple rule of thumb probably doesn’t apply. If you’ll need access to your investment dollars within a few years (e.g., to purchase a home or to pay your child’s tuition), you should consider investing more of your portfolio in less volatile securities that focus on capital preservation. If your investment goals are short term (e.g., two to five years), you won’t have time to recover from a downward swing in the markets, and you run the risk that money invested in volatile assets may not be there when you need it.
Mark A. Vergenes is President of MIRUS Financial partners, 110 E. King St., Lancaster. Investment Advisor Representative offering securities and advisory services offered through Cetera Advisor Networks LLC., member FINRA/SIPC. He can be reached at (717) 509-4521 or firstname.lastname@example.org. Cetera is under separate ownership from any other named entity. MIRUS Financial Partners nor Cetera Advisor Networks LLC. give tax or legal advice. Opinions expressed are not intended as investment advice or to predict future performance. All information is believed to be from reliable sources; however we make no representations as to its completeness or accuracy