Your Investments: Time to save on multiple tracks - opinion

• Published date: 08 March 2024
• Author: AARON KATSMAN
• Publication title: Jerusalem Post, The: Web Edition Articles (Israel)

They proceeded to tell me that when they had originally come to meet with me seven years ago, they were contemplating buying a house in a settlement for $500,000. They said that I encouraged them not to use every last shekel that they owned to put into the apartment but, rather, to buy something a bit smaller and keep $100,000 in the bank. They went ahead and followed my advice, and today they have over $150,000 in their brokerage account and own a home. Most important, they said that they can easily make the two weddings, help their kids get started, and still have a nice amount left in their account

This was refreshing for me on two fronts. To start with, it's not every day that I get thanked. More importantly, this couple heeded my warnings about not tying up their entire net worth in an apartment.

When we are younger and start to accumulate wealth, one aspect that we tend to neglect is the need for liquidity. I have met so many people over the years who have invested everything they have in their apartment. I'm not even talking about those who overbuy, and while they have beautiful homes, the monthly mortgage payments are suffocating them. I have indeed spent many columns writing about the importance of saving in any way possible. The more you can save and invest, the better. But there is another very important aspect that requires attention, and that's liquidity.

What is liquidity?

Liquidity is the ability to quickly convert an investment into cash without losing any of the principal that you've invested. For example, a savings account is highly liquid. In contrast, real estate is considered to have low liquidity because of the time it takes to sell the property and the fact that if you need to sell quickly, like a fire sale, you will end up paying the piper as the price of your property will drop. Don't believe me? Well, I have a good friend who, a few years ago, bought an apartment in a very desirable neighborhood (part of the desirability is because we live there too) at a 20% discount because the divorcing couple had to sell.

Just like my story with the couple with two children currently engaged, I work with many clients who are at the stage of starting to marry off their children. When we start to plan, they tell me how much their home is worth and how much it has appreciated. That's fantastic, and it's turned into a nice investment over the years. So, what's the problem? They ended up putting every last cent they had into their...