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Owning a home has long been seen as one of the most effective ways to build personal wealth. A recent survey from Citi Group found that 84% of current homeowners believe that owning a home is the key to creating wealth.
Yet nearly half of Americans can't afford a house priced at $250,000, and for those who can, property values can fluctuate, potentially creating a net loss when it comes time to sell.
On Yahoo Finance’s Money Glow Up podcast, host Tiffany Aliche talked with financial journalist and financial behavior expert Stacey Tisdale about how real estate may not be the best investment for everyone and why many people should consider other ways to contribute to their individual wealth.
“Homeownership is great, but what you have to realize about homeownership is it's not a liquid asset,” she said (see video above or listen below). “All portfolios need to be diversified. So you have to look — am I putting all my money in the real estate market because ... that's what I'm told to do?”
Read more: Should you buy a house? How to know if you're ready.
Alternative strategies for building wealth
The first thing Tisdale asks her clients is to “connect with what’s authentically important to them,” she said.
“They are shocked by how much time and money they spend on things that they don't really care about,” Tisdale said.
She noted that for some people, the expenses that come with owning a home — such as maintenance and labor costs — may not align with their overall values.
Tisdale advised looking into a diversified portfolio, with about 70% of that portfolio invested in stocks, to provide a person with more liquid assets.
She also suggested taking out life insurance policies on children when they’re born, noting it’s an investment that can help with some longer-term expenses later in life.
"My ex-husband and I got my son a life insurance policy," she said. "It's building cash, and that cash is investing in the stock market. You can use that money tax-free to pay for college. He can use that money one day for a down payment. Life insurance is a really incredible investment vehicle, and we don't think of it that way."
Ultimately, everyone’s portfolio will look a bit different. If real estate and homeownership don’t align with your priorities in life, then it may not be the best course of action to build wealth.
“Know what you're investing for and then you'll know the plan to put behind it,” Tisdale said. “If you want to live a comfortable life ... make your money work as hard as you.”