require that your credit, income, and market conditions still cooperate. If you have a major emergency or a business opportunity, you may not be able to tap that equity quickly or efficiently. Financial planners often warn that tying up too much of your net worth in illiquid assets like housing can leave you short on cash reserves and flexibility. 2. You Give Up Potential Investment Returns If your mortgage rate is, for example, in the five to seven percent range, the opportunity cost conversation becomes more nuanced. But historically, diversified investments like broad stock index funds have often produced average returns that can exceed long term mortgage rates, especially in periods when rates are relatively low. That does not mean you should automatically invest instead of paying cash. Markets are volatile and past returns are not guaranteed. It simply means that every dollar sitting in your walls is a dollar that is not: • Growing in tax advantaged retirement accounts • Earning returns in a diversified investment portfolio • Funding a business or other opportunity In other words, cash in a house is safe, but it may not be working as hard for you as it can be. 3. You Concentrate Your Risk If you put a large portion of your wealth into a single property, in a single town, in a single state, you are concentrated in one asset. If something affects that specific market, neighborhood, or property type, a big chunk of your net worth is exposed. A balanced financial life often includes a mix of: • Home equity • Retirement accounts
54
Powered by FlippingBook