Renting your home avoids the risk of having most of your wealth in one basket, wrote Jan. 26 in a story about the top 11 reasons why some people would rather rent than own. As 91亚色 Professor of the at 91亚色 writes in his new book Your Money Milestones: 鈥淏uying a house for an investment has strong similarities to someone being convinced stocks are a good investment for the long run, but they decide to buy only one stock for their portfolio. I don鈥檛 care how reliable that one stock is, or how large are the dividends, that stock portfolio is not diversified. The same goes for housing.鈥
Housing is not only a 鈥渃ompletely undiversified鈥 investment, in the words of Milevsky: it鈥檚 also a highly leveraged one, say other observers. While this aspect magnifies gains in house prices it also magnifies losses, so that relatively small fluctuations can wipe out all of the owner鈥檚 equity. Indeed, the value of the house could even fall below the value of the mortgage 鈥 as millions of US citizens have discovered since 2007. Renting reduces exposure to this scenario.
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