The Moneyist: I’m 30. My wife is 34. We saved $350K and I have $350K saved for retirement. Should we pay cash for a home — or take out a mortgage and invest it?

United States

Dear Quentin,

After finishing graduate school, my wife and I decided to pay off all our debt before buying a home, or anything for that matter.

We have been cheaply renting for the last three years, and living as if I were still a very poor graduate student. During this time, we paid off all of our debts, and even went as far as to save around $ 350,000 in cash.

My wife is 30, I am 34, and we are ready to take the next step. We now have two children under two who have over $ 20,000 and growing in each of their 529s. We are both covered by ample term life insurance, and I have an own occupation disability policy. I make about $ 250,000 per year.

I am very fortunate in that my employer contributes about $ 40,000 into my 401(k) while I contribute up to the remaining Internal Revenue Service maximum of approximately $ 57,000 per year. Our family HSA contribution is maxed out and grows every year.

My spouse stays home with the children now. We have a combined retirement portfolio of around $ 325,000. At this point, should we put a cash offer on a home, or take out a loan and invest the difference? Not having a mortgage in our 30s seems awfully nice.

Conversely, investing could bring greater long-term returns.


At A Crossroads

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Dear Crossroads,

Congratulations, paying off that debt and saving so aggressively is quite an achievement, and it’s something that few people your age get to do.

The clue is often in the question. You are already edging closer to the house. As a rule, it’s always recommended to put all of your money in one place. So if I was to suggest anything — and it’s only a suggestion NOT a recommendation — you could also split the difference and pay 25% to 50% down on a new home, and keep the remainder for investing, saving and a rainy day. Everything in moderation, even spending your hard-earned savings.

Of course, you get to live in a home of your choice in the neighborhood of your choice, and you get to enjoy that every day, as do your children. Having kids may also influence how much you are willing to spend on a home and where you are prepared to live based on the schools and the amenities in that district. It’s not just an investment, it’s a qualify-of-life choice, perhaps one of the most important choice outside of choosing a life partner.

MarketWatch Retirement columnist and CPA Riley Adams recently dealt with you very question, breaking down the pros/cons of both. The upside of stocks: “Stocks are liquid. Proven track record of success. Earn dividends. Easy to diversify your portfolio.” The downsides of stocks: “An emotional roller coaster. Short-term volatility. Capital-gains taxes.” That depends on your and your wife’s risk tolerance, and how much time you are willing and able to devote to investing.

The upside of real estate, per Adams’ advice: “A hedge against market volatility. Tax advantages. Cash flow.” And, like I said, you enjoy it every day. The downsides: “Real estate requires time and money. Your money is tied up. Tons of fees. Not easy to diversify.” And, if you are paying a mortgage, you also have to pay interest on top of the principal, which is tax deductible. Ditto property taxes. But paying that interest allows you to free up that extra cash.

Indeed, a recent study from the Federal Reserve Bank of New York looked at consumer preferences toward being a homeowner and how their attitudes have changed over the course of the COVID-19 pandemic. Survey participants were asked to rate which was the better investment — a home or financial assets such as a stocks — and what factors contributed to their choice. Some 90% of those polled said they preferred owning their primary residence to investing in the market.

Sit down with your wife, and a financial adviser and look at your options. The adviser, like a good therapist, should ask you questions and you should hold all the answers.

My multimillionaire husband is 90. I’ve looked after him for 41 years, but he won’t help my son

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