For many Australians, the family home is often the best 'investment' they make over the course of their lives (or so they will tell you). Certainly, it's the biggest single repository of wealth for many by the time retirement comes around. And for many people still, owning the family home is the only major financial goal they will ever actively pursue. While having a home (sans mortgage) is without a doubt beneficial to a comfortable retirement, I do take issue with this notion that your home is your 'best investment'.
Let me explain.
An investment is typically defined as something that will return cash to you, the owner, without the need to sell said investment. An investment property does this through rent, shares also qualify through dividends and capital gain – as does owning a small business. Even a term deposit can be viewed as an investment – you're loaning your money to the bank for an expected return on top of your initial capital.
Even though some shares don't pay dividends, the business is still returning cash flow (hopefully) to you as the owner, it's just choosing to reinvest it in the business on your behalf, rather than paying you out cash.
But how is a home an investment? Sure, its value might (and usually does) appreciate over time. But so does a fine bottle of wine, a vintage car, a collectable toy or even a gold ring. Are those items investments? Sure, you might be able to sell them for more than you bought them, but the difference here is no one is paying you to hold or own them. Therefore, they cannot be viewed as 'investments' through this lens.
Don't get me wrong, there are myriad reasons to own your home. A capital gains tax exemption is a lucrative one, the ability to borrow against the home's value another. And let's not forget not answering to a landlord and the simple pleasure of not paying to live somewhere (once the mortgage is paid off of course). But an 'investment' is not one of them.
Foolish takeaway
I still think owning your home is an important financial goal to have, and one that will serve you well. If nothing else, a mortgage is a forced-saving mechanism which strong-arms you into building equity. But if you want to actually invest – well, you might want to start looking at some shares instead!
