Kiplinger\'s Personal Finance - 04.2020

POON WATCHARA-AMPHAIWAN

FROM THE EDITOR

Mark Solheim

Home Sweet Asset

W

e all know the well-worn

truism that owning a home

is a key part of the American

dream. The belief has deep roots that

hark back to one of the main reasons

our forebears left the old country: to

become property owners, which was

the key to freedom and financial in-

dependence. My great-great grand-

father left Ireland in 1847, traveled to

Wisconsin and homesteaded 600 acres

of land on which the melting glaciers

had deposited rich, loamy soil. The land

he farmed and wealth the family nur-

tured was passed down through the

generations—and just a little

of it trickled down to me and

helped me buy the house

my wife and I live in now.

A powerful tool. The

home-as-American-dream

mythology has a personal

finance corollary: that

your home is your

biggest investment.

That principle is

being challenged

in the 21st century,

as shifts in the way

many of us view

homeownership

and even how we

save for retirement

are changing the

perception that

owning a home

is the ultimate

financial goal. Mil-

lennials burdened

by student loan debt

and daunted by steep

starter-home prices

are losing interest in

owning a home, studies show. And

your biggest asset may well be your

IRA or 401(k), not your home equity.

Even so, a home is likely to be the

most expensive purchase you’ll ever

make, and it’s a valuable and versatile

financial tool that can help you increase

your wealth. That’s why every year

Kiplinger reports on housing market

and mortgage rate trends (see page 64).

We also include a table of home prices

in the 100 largest metro areas in the U.S.

Many Americans are still trauma-

tized by the housing boom and bust,

when home prices nationwide tumbled.

(A number of markets still haven’t

returned to pre-crisis levels, as

our table shows.) But investors

and homeowners

alike were guilty

of excesses, and

we have returned

to more-realistic

expectations—

that is, over the

long term, a

home will likely

appreciate slightly

above the rate of

inf lation. Meanwhile,

homeownership serves

as a forced savings plan,

as you first stash money

for a down payment and

then build equity with every mortgage

payment you make. And a home is an

excellent tax shelter for most of us,

although the new tax law limits de-

ductions for interest on mortgages.

In our house, after years of living

with a tiny galley kitchen that I’m

guessing was last updated in the ’70s,

my wife and I are finally renovating

the kitchen, dining room and base-

ment. To finance the work, we tapped

our equity with a home equity line

of credit. That will create cash f low

while we wait to sell some stock, when

the profits qualify for lower capital

gains tax rates.

The renovations may ultimately help

our home’s resale value, but the main

reason we’re doing the work is to enjoy

an updated, more energy-efficient

home and make it more inviting for

family and friends. And that is my in-

terpretation of the American dream.

Investing in the planet. Our

cover story this month (see

page 20) is about buying

stocks, bonds, and mutual

and exchange-traded funds

that take advantage of the

hottest new Wall Street

theme: sustainable investing.

Big companies (Amazon,

Google and Microsoft, to

name just a few) and billionaires (Jeff

Bezos, Bill Gates) have hopped on board

the search for alternative energy, smart

recycling technology and other ways

to help the environment. For those of

you who would like to do the same—

and make some money, too—we found

some good opportunities. Q

MARK SOLHEIM, EDITOR

[email protected]

TWITTER: @MARKSOLHEIM

6 KIPLINGER’S PERSONAL FINANCE^

A HOME IS A VALUABLE AND

VERSATILE FINANCIAL TOOL

THAT CAN HELP YOU

INCREASE YOUR WEALTH.