Everyone wants to know, how does improving your home compare to investing in Wall Street (stocks, mutual funds, bonds, etc.)?
Unless you can see into the future or are the next Warren Buffet, investing in home improvements is going to be a better long-term investment for the average family than putting your money in Wall Street. Here's a chart.
| # of Years | Home Improvements | S&P 500 |
|---|---|---|
| 5 | $3,412 | $1,279 |
| 10 | $7,716 | $1,304 |
| 15 | $12,867 | $3,039 |
| 20 | $19,133 | $6,707 |
| 25 | $26,758 | $12,302 |
| 30 | $36,034 | $24,228 |
The left column shows about how much an investment of $1290 made by an average family of four with an electric water heater will be worth in X years. However, returns will vary greatly depending on where you live. Click here if you have an electric water heater and here if your water heater is gas powered.
The right-hand column shows how much that same investment would be worth today if invested in a S&P 500 index fund (with compounding dividends) X number of years before 2010. In recent years, when the stock market has been flat or even gone down, there is no competition. Yet even compared with investments made before the bull market that lasted from the mid-1980's through 1990's, home improvements produce better returns than Wall Street.
Still skeptical? Consider this: the chart above does not include the impact of taxes or inflation.
The only drawback of investing at home is that there is a limit to how much money you can invest at a safe, high rate of return. But even if you have tens of thousands of dollars to save, the best place to invest the first $1,000 to $1,500 is going to be at home. If you want to invest more money at home, I have some ideas here.
Though investing at home has numerous advantages over Wall Street, you can also combine the two to great effect. The typical family of four will earn about $625 a year in energy savings. However, investing at home works best when this money is reinvested in low-risk, cash producing investments like bonds and high-yield utility stocks that offer a safe way to create additional streams of income. The chart above assumes that energy dividends are re-invested for earnings of 4% a year - not tremendously high given the fact that many utility companies have offered dividend returns of 5-6% a year for decades. Click here for some ideas on re-investing your home improvement earnings.
Still not convinced? Read the Top Six Reasons to Invest in Home Improvements.