'Your Life Should Be Exciting, But Investments Should Be Boring': Money Expert On Common Mistake When Building Wealth

At a time when investors are chasing trends and hot stocks for profits, the New York Times bestselling author David Bach believes that if you go to a party and someone is talking about their investments that sound exciting, something is wrong with it.

'Your money and investments should be boring. Your life should be interesting but your investments should be boring,' Bach said in a recent interview on The Diary of a CEO podcast.

When asked why investments should be boring, Bach said: 'Sexy is how you go broke when it comes to money. Boring is beautiful when it is about your wealth.'

Bach added that even his son wonders why he doesn't trade the Tesla stock. It is because you have to figure out when to buy and sell amid all the volatility. 'I want my kids to invest in index funds. I have my clients investing in index funds,' Bach had shared.

Generational Wealth is Built Through Home Equity

Bach has a unique take on whether people should invest in stocks or buy a house. The financial expert said the stock market returned an average of 10% annually in the past two decades, and that people believe the gains are higher compared to real estate, but that is not an 'apples-to-apples' comparison.

While buying a home, people don't typically pay cash for their first house. They usually put down 20% and borrow the remaining. Let's consider you put $40,000 on a $200,000 home, and then the price of the property appreciates to $400,000 in 10 years.

'This has happened to so many people in the last five years,' Bach said, referring to the meteoric rise in US real estate prices. 'There are markets all over the US where housing prices have gone up 100% to 200%.'

Considering a person bought a $200,000 home, borrowed 80%, and the property value doubled to $400,000, they've made $200,000 in profit. More interestingly, they got a five times return on their down payments of $40,000.

Furthermore, when US homeowners avoid taxes on the gains when selling their house. 'In the US, when you own a home for over two years and you are single, you get $250,000 in tax-free gains.' The amount goes up to half a million dollars in tax-free gains. You even get tax deductions for mortgage payments.

While many people opine that 'you shouldn't be tied down, you need to be flexible when young...put in the extra money in a mutual fund,' but in the real world, 'people don't do that.' Bach explained.

They rent an apartment they cannot afford and spend all their money. In their mid 30s, they realise that they have amassed no equity or savings. 'It is an absolute myth that people take this extra money that they could have used to buy a house and they are going to put it in the stock market,' according to the expert.

This is also among the top reasons why corporate America is buying up real estate all over the country to rent to an entire generation hoping these people never buy a home.

Lastly, Bach said that generational wealth is created 'for better or worse' through home equity, adding that if a family doesn't buy a home, the likelihood the next generation can buy a home is very low.