360° Coverage : Your Home Is Not A Retirement Piggy Bank

2 Updates

Your Home Is Not A Retirement Piggy Bank

Apr 21 2014, 3:38pm CDT | by

The investment bank J.P. Morgan recently released an interesting, very lengthy report on the state of the markets. Compelling reading, but the really arresting chart was all the way out on slide No...

Filed under: news

 
 
 

26 weeks ago

Your Home Is Not A Retirement Piggy Bank

Apr 21 2014, 3:38pm CDT | by

The investment bank J.P. Morgan recently released an interesting, very lengthy report on the state of the markets. Compelling reading, but the really arresting chart was all the way out on slide No. 65.

On that page, you learn the long-term performance statistics of a number of different asset classes. Here’s a simple list version of the chart:

  • Real estate (REITs): 11.2%
  • Gold: 8.4%
  • S&P 500: 8.2%
  • Foreign stocks (EAFE): 6.5%
  • Bonds: 6.3%
  • Homes: 2.7%
  • Inflation: 2.5%
  • Average investor: 2.3%

That’s what happened from 1993 through 2012, according to data gathered by market research firm Dalbar and cited by J.P. Morgan in its report. People tend to focus on the last item, the relative performance of the average mutual fund investor.

That’s a terrible result, I know, but I want to point out instead the two entries just above, inflation and home prices.

All investing at its root has the same goal, to beat inflation by a wide enough margin to allow your savings to grow by compounding in a reasonable period of time. Given that most people save for 20 to 30 years in order to retire, that is what we have to consider “reasonable.”

So, your target is double, double again and maybe double one more time. One becomes two, two becomes four, then becomes eight.

Zero growth

What many people do instead is focus on the single biggest asset in their lives, their home. That’s not a bad thing. Owning a home can be a great deal, since you get to live in it while you pay it off and the taxes and interest are deductible.

But you shouldn’t confuse owning a home with real retirement savings. Even if you plan to downsize, the amount cash you might realize in a sale and repurchase will not be significant.

Meanwhile, your home “investment” is only growing at about the rate of inflation, which is to say, by nearly zero.

Your return goal should be to safely double your savings every decade. That would require you to earn at least 7.2%. Add in normal inflation, and your goal becomes something closer to 10%.

Can you do that these days? The short answer is yes. An all-stock portfolio in the years from 1950 through 2013, a period which included every major market crash and hiccup in modern times, nevertheless gained 11% annualized.

A bond portfolio did 6.1%, and a 50-50 stock and bond mix returned 9%, according to J.P. Morgan’s analysis.

Lower costs

The real trick is owning enough stocks early, when those market declines are opportunities to buy rather than a headache to endure, then slowly move over to a less-volatile mix of income investments as you age.

That type of portfolio management is getting easier and easier to do at greatly reduced cost, thanks to ETFs and simple online software. So, yes, buy a home and keep it repaired and enjoy those tax breaks year after year.

Just don’t bet your retirement on it.

 
Update
2

8 weeks ago

Khazanah throws MAS RM6b lifeline

Aug 29 2014 5:01pm CDT | Source: Business Times Singapore

August 30, 2014 1:15 AMKHAZANAH Nasional will inject RM6 billion (SS$2.4 billion) over three years to resuscitate loss-making Malaysia Airlines (MAS) under a recovery plan that includes even an Act of Parliament. Other key moves are migrating its operations, assets and liabilities to a n ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 
Update
1

8 weeks ago

MAS posts loss of RM307m for Q2

Aug 28 2014 5:00pm CDT | Source: Business Times Singapore

August 29, 2014 1:13 AMMALAYSIA Airlines (MAS) registered a loss of RM307 million (S$122 million) for the second quarter to end-June, but warned of worse to come in the second half when the "full financial impact of the double traged ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

World Bank approves $75 mn for pastoralists in Horn of Africa
Nairobi, Oct 26 (IANS) The World Bank has approved an additional credit of $75 million to improve the livelihoods and resilience of pastoralists in the Horn of Africa.
 
 
Slovakia to provide further financial help in fighting Ebola
Bratislava, Oct 26 (IANS) Slovakia planned to provide some 90,000 euros ($114,000) to countries affected by Ebola to help with the construction of field hospitals, foreign ministry said Saturday.
 
 
Mauritania closes border with Mali after Ebola death
Nouakchott, Oct 26 (IANS) Mauritania has closed its border with Mali after an Ebola death was confirmed in the border area this week, a health official said Saturday.
 
 
Number of Ebola cases crosses 10,000: WHO
Geneva, Oct 25 (IANS/EFE) The World Health Organisation (WHO) confirmed Saturday that the number of Ebola cases has risen to more than 10,000 in the eight affected countries, two of which, Nigeria and Senegal, had recently been declared free of the virus.
 
 
 

Latest from the Network

Second MERS case reported in Qatar
Doha, Oct 23 (IANS) A 43-year-old man in Qatar has tested positive for Middle East Respiratory Syndrome (MERS) in the second confirmed case of the deadly virus in 10 days, media reported Thursday. The patient had...
Read more on Business Balla
 
Two people die in Pakistan bomb blast
Islamabad, Oct 23 (IANS) At least two people were killed and 12 others injured in an explosion that took place in Pakistan's Balochistan province Thursday, media reported. The bomb was planted on a motorcycle, Dawn...
Read more on Politics Balla
 
Trott extends contract with Warwickshire till 2017
London, Oct 23 (IANS) England batsman Jonathan Trott, whose mental issues led to his abrupt departure from last winter's Ashes tour, has confirmed his successful comeback to competitive cricket by signing a new three-...
Read more on Sport Balla
 
Srikanth, Kashyap big movers in BWF rankings
Kuala Lumpur, Oct 23 (IANS) Indian men shuttlers Kidambi Srikanth and Parupalli Kashyap jumped seven places each in the latest Badminton World Federation (BWF) rankings released Thursday while Olympic bronze medallist...
Read more on Sport Balla
 
Alvin Stardust dead
London, Oct 23 (IANS) English singer Alvin Stardust died after a short illness. He was 72. Stardust's manager confirmed the news about his demise Thursday, reports mirror.co.uk. He was recently diagnosed with...
Read more on Celebrity Balla
 
Indian man reunited with family after 40 years
Dubai, Oct 23 (IANS) An Indian man, who had disappeared from his hometown in Kerala nearly 40 years ago, has been found by his family at a hospital in Dubai in the UAE, a newspaper report said. Now in his 60s, Abdulla...
Read more on Politics Balla
 
Srikanth, Kashyap, Saina rise in world rankings
Kala Lumpur, Oct 23 (IANS) Indian men shuttlers Kidambi Srikanth and Parupalli Kashyap jumped seven places each in the latest released Badminton World Federation (BWF) rankings Thursday while Olympic bronze medallist...
Read more on Sport Balla
 
Flintoff signs for Big Bash side Brisbane Heat
Brisbane, Oct 23 (IANS) Former England captain and all-rounder Andrew Flintoff, who retired from international cricket in 2009, Wednesday confirmed that he will play for Brisbane Heat in the Big Bash League (BBL) this...
Read more on Sport Balla
 
OPEC daily basket price falls again
Vienna, Oct 23 (IANS/WAM) The basket of 12 crude oils of the Organization of Petroleum Exporting Countries (OPEC) closed at $81.94 a barrel Wednesday compared to $82.09 Tuesday, the OPEC Secretariat said. The new OPEC...
Read more on Business Balla
 
Lopez to sign multi-million dollar deal?
Los Angeles, Oct 23 (IANS) Singer-actress Jennifer Lopez is reportedly in the final stages of securing a multi-million dollar deal to perform in Las Vegas. The 45-year-old is being offered $350,000 per show at The...
Read more on Celebrity Balla