What happens to your mutual fund portfolio final value if you choose to buy a house?
This article shows how to understand the impact on your portfolio if you stop investing for a few years between today and retirement to buy a house.
What happens to your mutual fund portfolio final value if you choose to buy a house?
Posted on 08 May 2024
Author: Sayan Sircar
4 mins read
📢Join 3500+ readers on WhatsApp and get new post notifications!
This article shows how to understand the impact on your portfolio if you stop investing for a few years between today and retirement to buy a house.
📚 Topics covered:
- Don’t Buy a House, Invest in Mutual Funds via SIP
- How to Measure Changes in Your Investment Portfolio?
- What is the Impact of Buying a House?
- Timing Your House Purchase
Don’t Buy a House, Invest in Mutual Funds via SIP
This is a common advice you’ll hear often on social media platforms like YouTube, Twitter/X, Facebook, and Instagram. Your friends and colleagues might suggest the same. Many advocate that investing in mutual funds rather than real estate is better for wealth accumulation. They might be promoting the best mutual funds or teaching investment strategies. Conversely, real estate advocates favor property investment.
It’s well-known that pausing or reducing your mutual fund contributions during your career can impact your final savings. The critical question is:
How significant is this impact if you interrupt your investments to purchase a home?
This article explores the answers to that question.
How to Measure Changes in Your Investment Portfolio?
We’ll apply the framework described here: How much lower is your portfolio value if you pause investments for a few years?
| Year | Yearly Investment (without break) | Yearly Investment (with break) |
|---|---|---|
| 1 | 5.00 | 5.00 |
| 2 | 5.50 | 5.50 |
| 3 | 6.05 | 6.05 |
| 4 | 6.66 | 6.66 |
| 5 | 7.32 | 7.32 |
| 6 | 8.05 | House EMI |
| 7-14 | 8.86-17.26 | House EMI |
| 15 | 18.99 | House EMI |
| 16 | 20.89 | 20.89 |
| 17-20 | 22.97-30.58 | 22.97-30.58 |
| 21 | and | so on |
By the end of a 30-year period, marked as ‘House EMI’ years in the table, we’ll examine the impact on your portfolio.
We assume an investor:
- Invests monthly, increasing the yearly investment by 10%.
- Earns an average post-tax return of 10% annually.
- Pauses investments for 1 to 15 years.
The differences in portfolio values are shown in the table, highlighting the effects of investment pauses.
Also read
The complete guide for transferring money to an NRE account: NRO to NRE and resident to NRE covered
The complete guide for transferring money to an NRE account: NRO to NRE and resident to NRE covered
What is the Impact of Buying a House?
The final portfolio value varies little with the timing of the house purchase. Regardless of when you buy during your earning years, the impact remains relatively consistent. However, the longer the investment pause, the smaller your final portfolio. It’s advisable to repay the loan quickly to minimize this effect.
To understand what is the right time to buy your first house:
Related:
When should you buy a house if your goal is FIRE or early retirement? In your 30s, 40s or 50s?
Timing Your House Purchase
Questions often arise about the best time to buy a house:
- Should it be early, mid, or late in your career?
- How does the timing affect your retirement plans?
The timing of your house purchase surprisingly has minimal impact on your final portfolio, as income tends to increase over time. Thus, you could afford a more valuable home later in your career. An argument could be made for purchasing at retirement, but consider:
- You will pay rent until then.
- Your investment in SIPs might be lower due to rental expenses.
Related:
How much time and interest do you save if you pay off your home loan using a step-up EMI?
In conclusion, buy a house when it suits you best:
- For under-construction properties, see: How to Buy Your Dream Home Without Any Savings: A Step-by-Step Guide
- For ready-to-move houses, refer to: Should you withdraw from your EPF to buy a house?
Related Articles
- When should you buy a house if your goal is FIRE or early retirement? In your 30s, 40s or 50s?
- Should you sell your mutual funds to buy a house?
- How much lower portfolio value do you end up with if you do not invest for a few years in between?
What's next? You can join the Arthgyaan WhatsApp community
You can stay updated on our latest content and learn about our webinars. Our community is fully private so that no one, other than the admin, can see your name or number. Also, we will not spam you.For resident Indians 🇮🇳:
For NRIs 🇺🇸🇬🇧🇪🇺🇦🇺🇦🇪🇸🇬:
Share on WhatsApp: To understand how this article can help you:
If you have a comment or question about this article
The following button will open a form with the link of this page populated for context:If you liked this article, please leave us a rating
The following button will take you to Trustpilot:Discover an article from the archives
Previous and next articles:
Latest articles:
Topics you will like:
Next steps:
1. Email me with any questions.
2. Use our goal-based investing template to prepare a financial plan for yourself.Don't forget to share this article on WhatsApp or Twitter or post this to Facebook.
Discuss this post with us via Facebook or get regular bite-sized updates on Twitter.
More posts...Disclaimer: Content on this site is for educational purpose only and is not financial advice. Nothing on this site should be construed as an offer or recommendation to buy/sell any financial product or service. Please consult a registered investment advisor before making any investments.
This post titled What happens to your mutual fund portfolio final value if you choose to buy a house? first appeared on 08 May 2024 at https://arthgyaan.com
We are currently at 503 posts and growing fast. Search this site: Copyright © 2021-2024 Arthgyaan.com. All rights reserved.