I am 30 years old. My wife is 34 years old. We saved $ 350,000 and I have $ 325,000 in retirement savings. Should we pay cash for a house – or take out a mortgage and invest it?
After graduating from college, my wife and I decided to pay off all of our debts before buying a house, or anything for that matter.
We have been renting cheaply for three years and live as if I was still a very poor graduate student. During that time, we paid off all of our debts and even went so far as to save about $ 350,000 in cash.
My wife is 30, I am 34 and we are ready to take the next step. We now have two children under two who are over $ 20,000 and growing into each of their 529s. We are both covered by term life insurance and I have my own work disability insurance policy. I earn around $ 250,000 per year.
I am very fortunate in that my employer contributes approximately $ 40,000 into my 401 (k) while I contribute up to the Internal Revenue Service’s maximum remaining amount of approximately $ 57,000 per year. Our family HSA contribution is maximized and increasing every year.
My partner is staying at home with the children now. We have a combined retirement portfolio of approximately $ 325,000. At this point, should you make a cash offer on a house, or take out a loan and invest the difference? Not having a mortgage in your 30s sounds awfully good.
Conversely, investing could generate better returns over the long term.
At the crossroads
You can email The Moneyist with any financial and ethical questions related to the coronavirus at [email protected]
Congratulations, paying off that debt and saving so aggressively is quite an achievement, and something few your age can do.
The clue is often in the question. You are already approaching the house. As a general rule, it is never recommended that you put all your money in one place. So if I had to suggest anything – and this is just a suggestion, NOT a recommendation – you can also split the difference and pay 25% to 50% down payment on a new home, and keep the rest. to invest, save and on a rainy day. Everything in moderation, even while spending your hard-earned savings.
Of course, you can live in a house of your choice in the neighborhood of your choice, and you enjoy it every day, just like your children. Having children can also influence how much you’re willing to spend on a house and where you’re willing to live depending on the schools and amenities in that neighborhood. It’s not just an investment, it’s a quality of life choice, perhaps one of the most important choices outside of choosing a life partner.
MarketWatch Retirement and CPA columnist Riley Adams recently answered your question, breaking down the pros and cons of both. The advantage of stocks: “Stocks are liquid. Proven track record of success. Earn dividends. It’s easy to diversify your portfolio. The downsides of stocks: “An emotional roller coaster. Short term volatility. Capital gains tax. It depends on your risk tolerance and that of your wife, and how much time you are willing and able to devote to the investment.
The real estate advantage, according to Adams’ advice: “A hedge against market volatility. Fiscal advantages. Cash flow. “And, like I said, you enjoy it every day. The cons:” Real estate takes time and money. Your money is tied up. Tons of fees. Not easy. to diversify. “And, if you pay a mortgage, you also have to pay interest on top of the principal, which is tax-deductible. Ditto for property taxes. But paying that interest frees up that extra money.
Indeed, a recent Federal Reserve Bank of New York study looked at consumers’ preferences for home ownership and how their attitudes have changed during the COVID-19 pandemic. Survey participants were asked to rate which was the best investment – a home or financial assets like stocks – and what factors contributed to their choice. About 90% of those surveyed said they would rather own their primary residence than invest in the market.
Sit down with your wife and a financial advisor and consider your options. The counselor, like a good therapist, should ask you questions – and you should have all the answers.
The Moneyist:My multimillionaire husband is 90 years old, I took care of him for 41 years, but he will not help my son
Hello, MarketWatchers. Check the private Facebook Moneyist
group, where we seek answers to life’s toughest money problems. Readers write to me with all kinds of dilemmas. Post your questions, tell me what you want to know more about or weigh in on the latest Moneyist columns.
By submitting your story to Dow Jones & Company, the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including through third parties.