May

7

Home Equity Is A Prudent Investment?

Filed Under Mortgage Matters | Comments Off

We need to begin by defining a “prudent investment” because any investment that involves the serious money surrounding home equity has to be prudent. Ultimately, for an investment to be considered prudent, it must have three elements:

1. Liquidity- Can you get access to the cash deposited into your investment when you want/need to?
2. Safety- Is the principal invested safe, guaranteed and/or insured?
3. Rate of Return- Is the investment going to grow at an acceptable rate?

With a prudent investment defined, let’s look at “cash buried in your backyard” as an investment. Is it liquid? Yes (as long as you remember where you buried it.) Is it safe? Yes (as long as no one else knows where you buried it.) Does it have a Rate of Return? Most people answer No, but the real answer is Yes (because of inflation, cash actually has a negative rate of return.)

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