Rebalance & Diversify

Will Rogers had a simple investment rule, “Only buy stocks that go up. If they don’t go up, don’t buy them”. Unfortunately, real life finance is more complicated than that.

Most financial professionals would agree that one of the most important investment strategies is to keep a diversified, well-balanced portfolio. No matter how good Google may seem today, to have all your money in just that one stock poses an unnecessarily high risk. This is especially true for retirees or those preparing to retire.

Yet most older people have the bulk of their wealth invested in a single asset: their home. Back in the days when we believed home values only went up, that seemed like a good idea. Now, we know home values can go down, houses can be hard to sell and even getting a mortgage or equity line is not a guaranteed option.

Another rule of investment is the importance of rebalancing your portfolio. That may involve selling off stocks that are still going up to avoid the pain of selling them as they are going down. It may also mean adding investments that are still in decline in order to buy at a good price a stock that might be more expensive latter.

Rebalancing and diversifying both require a certain amount of financial discipline and planning. They may well be the two great challenges of a strong retirement income strategy.

So, what does this have to do with Home Equity Conversion Mortgages (HECM)?

Getting a HECM equity line is a way to leverage the dead equity trapped in your home. It does this by making a portion of that money liquid so you can spend it and manage it like the rest of your wealth. This has the affect of rebalancing the percentage of assets that is concentrated in one piece of real estate.

Here’s an example: if you have $500,000 invested for your retirement and own a home worth $500,000 you are worth a million dollars, but half of your wealth is invested in one “stock” (your home). It is accessible only by selling or mortgaging the property.  A HECM equity line gives you access to that equity without the pressure of monthly payments or the risk of foreclosure, funds being denied you in the future, or the loan being called.  Now, more of your wealth is liquid and accessible.

By diversifying some of your money out of the house you have rebalanced your finances giving you more control of your choices. You have also limited your exposure to risk in the real estate market without diminishing your control over your home.