If someone were to ask me, “what would you consider a good investment?” my immediate response would be something along the lines of, a contribution to a portfolio that contains a mix of total market stock and bond index funds.”
That’s it; it really is that simple. Sure, you could get a little fancy by throwing in some REITs or high-yield dividend stocks, but ultimately, a good investment is one that is put into low-cost index funds that track an entire market. The low fees associated with these types of funds keep more money in your net worth, and as far as I can tell, a mutual fund that follows a broad index provides the best results over a long period of time.
But a recent situation in my life made me realize that sometimes, this can be too simplistic of an answer. That’s because it ignores the other types of good, reasonable investments that are available to us.
Investing in More than Stocks and Bonds
We invest 40% of our income each month. If we end up with a budget surplus on top of that, the “extra” money gets thrown into our investment accounts, too.
But last month, we decided to tackle a home improvement project. And it completely stressed me out, because the cost to complete the work would be almost exactly 40% of our monthly income.
In other words, we’d miss a month of contributing to our investment accounts in order to complete the project on the house. This was terrible!
Strategizing to Make Our Home one of Our Good Investments
Well, not so fast. The more I thought about it, the more I realized that our money was still being invested.. just in a different way than normal.
Here’s the story on how we decided to invest in our home rather than the stock and bond markets for one month:
I’m not sure how common this is in all houses, but ours is a two-story traditional-style home, built in the early 1990s. In many homes like it in our area, the builders installed carpet in the master bathroom. Our house was no exception.
I have no idea why anyone in their right mind would put carpet in a room that sees a lot of moisture, but hey, the 90s were a different time.
Replacing the bathroom flooring is one of a few very big projects we’d like to do around the house before we attempt to sell the property in a few years. We’re trying to be smart about where we put our money.
Because we know this house is not our “forever home,” we’re more interested in doing things that potential buyers want to see rather than what is most important to us. Not all home improvement projects are good investments. Not all renovations, repairs, or replacements will add value to the home.
To me, this is what it means to be strategic with your home to make it a good investment: making intentional decisions with resale value in mind.
Replacing carpet with nice tile was a big job. To keep costs reasonable, we did all the work ourselves. It took a few weeks of working on it here and there to complete, but all the tile is laid now and it looks awesome. We now have a updated bathroom that is no longer dated and is completely icky-carpet-free.
It was stressful to forego a month’s worth of investment contributions, but I feel better when I consider that the money we put into our home is going to provide a great ROI when we go to sell. We need to continue being smart about where we put our money when it gets diverted from our index fund holdings, but as long as we do that we should be able to make some good investments beyond just stocks and bonds.
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Have you made good investments outside the stock market? How do you decide what can make a good investment?
Income Surfer says
Absolutely Kali! In addition to “quality of life” investments, any debt incurring an interest rate over 4 or 5% would be a good option. Many people over look reinvesting in their own business, which is a great option if you ROI is high enough. It looks like you are conscious about how you allocate your capital, which will serve you well years in the future.
Dee @ Color Me Frugal says
I think as long as you are putting your money into something that has a good chance of either increasing in value or providing you with future income, I’d consider that an investment. And hey, the AWESOME thing about your situation is that you are able to cover your renovations with one month’s paycheck and you don’t have to dip into savings or incur debt in order to do it!! That’s pretty much my definition of a financial rock star!!
Jon @ Money Smart Guides says
I’d be just as stressed as you were. I love putting money into my mutual funds every month. Skipping a month would not be easy for me.
With that said, we are in the same boat with my wife’s house (we live in her house, rent out mine). We know this house isn’t our forever house either and we are debating whether or not to use it as a rental when we move. There are pros and cons to it but updating the house is tough. On one hand, I don’t want to go super fancy if we plan on renting it and risk it being destroyed. But on the other hand, I want to get value for the upgrades when it comes time to sell.