Why Diversify Your Home
Owning a home tied to one local market is much like investing in a single stock. Radio Shack, General Motors and Sears are all past members of the world’s most recognized stock index – the S&P 500. A $100k investment into any of these individual stocks in the past potentially returned pennies on the dollars when each was removed due to going out of business or filing for bankruptcy.
Meanwhile, a $100k investment made directly into a highly diversified S&P 500 stock index fund (investing in 500 companies versus just one) potentially tripled in value over a 20-year period. (1996 to 2016)
Real estate is another form of investment. Just like stocks, concentrating one’s largest asset (home) in a single market can lead to bad outcomes – loss of equity, foreclosure, etc.
But an individual with an HDA-covered house in the same exact market and neighborhood can avoid a comparatively sizable percentage of those losses experienced by their neighbors, given their home price is tied to (exchanged for) a much more stable, less volatile (as much as 62% less), diversified HDC national home price index.