Created by Humms
Post Reply Compound interest investment or home equity
Humms 
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25 / M / CAN, ON
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Posted 3/27/18 , edited 3/28/18
I'm interested

Both make you money......

...... Tis an interesting dilemma. You can't determine the value of a home until time has set it's course, but you can visually see an investment grow exponentially, granted the market stays true, but that can be said about both.

The world's a funny place, but sometimes the obvious answer is tricky.
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27 / M / Leanbox, Gameindu...
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Posted 3/27/18 , edited 3/27/18
Eh, it's a tough call.
In an ideal world where you live in an affordable market you'd live like a poor college student for a few years and kill off the mortgage as fast as possible, that way if you lose the job or something horrible happens to your health at least you wouldn't have to worry about foreclosure.

That being said most of us probably don't live in the middle of nowhere (i.e. no cheap housing) so doing the above is probably not realistic for most people.
Here is what I would advise Americans (not sure if this applies to Canada as well), make a 20% down payment to avoid private mortgage insurance since that is essentially just throwing away money and since interest rates are low invest the rest.
If you can afford it go for a 15 year, but if you a single home buyer or a dual income home buyer in a very expensive market a 30 year mortgage is really your only option.

After that, do whatever you can to lower your taxable income: first contribute to 401k up to employer's matching amount since it's essentially free money, max out your $5,500 limit on your IRA (Individual retirement account) and if you are on a health care savings build up enough to cover a year's deductible (all tax free). From there, if you have children look into opening a college savings account to further get your money out of the highest tax bracket you are in.

Now once that is all done finish maxing out that 401k contribution limit and after that if you a normal person who knows nothing about investing get a target date fund. Sure, target date funds might not be the highest return, but it will be diversified and less likely to tank. The key is to start investing early so the compounding effect benefits you more. Now if and only if you have studied investing go ahead and buy individual stocks, just make sure to diversify (international/national, by sector/industry, etc.) but honestly most people are probably better off just paying the fee to somebody like Vanguard or Fidelity and calling it a day.

I don't know squat about investing although I work with a lot of guys who talk about their stocks and investments all day and the above is at least what they are doing and they seem to be doing well in regards to their finances.

Overall here are the steps (international version):
Make minimum payment in your country/area to avoid private mortgage insurance, if you can afford to make a larger payment do it, but only if you think you can pay off the house extremely quickly. If interest rates rise my advice on this will change.
Take advantage at whatever tax free deductions you can take in your country in order to keep more of your money.
Then if you understand what you are doing go ahead and invest, but diversify your stock portfolio, if not just use a company that specializes in personal retirement accounts that has low fees and contribute a % of your paycheck to it.
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Posted 3/28/18 , edited 3/28/18
going with Compound interest investment myself. for those who are lucky enough to buy a home, it'll take decades to pay it off. and things do cause property values to change. neighbors, unforeseen natural disasters. however, in my opinion, Compound interest investment involves much better odds. granted, one must be sound in making money before they do anything. living beyond your means will catch up to you eventually, however, putting aside a small amount each month isn't going to hurt much, if you aren't living beyond your means. put up more when you make more, put up less when you make less. not to mention, since the government has shown too much failure, the chances of them having our back as we mature in life is slim to none.
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Posted 3/31/18 , edited 3/31/18
Compound is the better of the two, but home equity is safer. The difference is the better the potential of gain usually has a risk of losing you more money. Properties are always needed and so the value doesn't alter much and so the gain isn't much across years. Also properties are considered "Bricks and Mortor" which just means it isn't as easy to sells your stuff to get the actual money. E.g. if you want your money you usually have to wait for someone to buy your value of the properties your in.

Compound interest is good when everything is on the up and even better when a recession ends. The problem with compound interest is usually you stick to one thing and don't move your money / value around. If what ever you've been invested in does really well then your money does well, if it doesn't then your money doesn't do well.

If your on about investments it generally comes down to what level of risk your ok with. Personally I looked over the best funds in every sector to invest int (UK based finance company). I found that investing in UT UK Smaller Companies was the best but also came with a higher level of risk. Now I know you wouldn't be investing in the UT UK Smaller Companies, but I know China / Japan have a Smaller Companies sector, so I'd imagine America and Canada do to.

It's a very complex subject which can't easily be explained a forum such as this.
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