If you've owned your home for many years, the chances are pretty good that it's increased in value - perhaps substantially. However, even if that's the case, don't assume that it will continue appreciating to the point where you can count on it to help support your retirement and other long-term goals.
It can be quite tempting to look at your house as an investment - and a positive one, at that. In fact, American homes have appreciated, on average, slightly more than 6.3 percent a year from 1968 through 2002, according to the National Association of Realtors. Of course, your home's value depends, to a large extent, on the neighborhood in which you live. But even if your home has more or less tracked that 6.3 percent figure - certainly a decent return - there's no guarantee you'll make steady gains in the years ahead. We've seen plenty of "hot'' real estate markets that have gone cold.
Unfortunately, many people view their homes as their chief "growth'' vehicle for the future. Toward that end, they pour a lot of money in big remodeling projects, assuming they will greatly increase the value of their homes. But the fact is that, with many home improvements, you may not even recoup the costs, much less add to the sale price of your house. If you are going to invest money in your home for the purposes of adding to its value, you're probably better off by taking care of the ''basics'' - applying a new coat of paint, fixing the roof, etc. - rather than adding "luxury'' items, such as a hot tub or swimming pool, which may not seem desirable to prospective buyers.
Still, you shouldn't totally ignore your home as a financial resource. For example, if you need either a lump sum or liquid source of funds, you might want to consider taking out a home equity loan or line of credit. (Before you take on this type of debt, though, make sure that you can handle the payments, because you are using your house as collateral. Make sure you talk this over with your investment professional.) You can usually find competitive rates on home equity loans and credit lines - and the interest may be tax-deductible. And by using the equity you've built in your home to help meet your needs for cash, you can avoid dipping into your savings and investments.
Those investments - stocks, bonds and other securities - are the key to your future. How you choose to spread your dollars among these assets will depend on your risk tolerance and your time horizon. As you invest, you may face short-term volatility, but, over time, a diversified portfolio of high-quality investments may almost certainly reward you more than hoped-for gains from the sale of your home.
If you want to increase the enjoyment you get from your home, go ahead and make whatever improvements you want. If you need greater liquidity, use your home as a "bank'' from which you can borrow. But don't assume that your home frees you from the need to invest - it doesn't. Ultimately, to get the growth and income you need to help you achieve your long-term financial objectives, such as a comfortable retirement, you'll have to look past your own front door.