It is said that to be good at yoga you need strength, balance and flexibility and that most people have one and a half of these. It is also said that yoga is a practice, because everyone struggles, it is just a question of how much.
Similarly, to have a healthy overall financial picture you need investments in income/conservation, real estate and growth assets and most people don’t magically have the right amount of these. It requires an in-depth analysis of each individual’s circumstances and assets to find the right mix for them. In addition, the balance needs to be reviewed periodically because it shifts as you grow older and with other changes in your circumstances.
A good friend who owns a real estate agency was telling me the other day that she was beginning to see the light at the end of the tunnel in completely paying off her home mortgage. She had been using nearly all of her savings for the last few years to make extra payments on her mortgage.
On the surface, paying off your mortgage is a good thing. However, using all of her savings to do that while not building any growth investments (mutual funds or other securities holdings) left her over invested in real estate. As it stands today, if real estate experiences a downturn, she could be in a situation where and both her home value and her business are down as a result.
When I pointed out this concern to her, she said, “That makes sense. I should take a few of my eggs and put them in another basket.” She began to shift the investment of her savings more toward a stock and bond portfolio. We both felt better about that balance for helping her achieve her goals. Namaste!