Financial planning is really about… considering buying a house purely for investment purposes

Buying a home hits a psychological sweet spot with most of us. It’s the nesting instinct. The idea of always having a home over our heads intuitively appeals.

But it would be an amazing statistical coincidence if the most suitable home is also the best possible investment option. It almost certainly isn’t, and there is a lot to be said for the idea of buying purely for investment purposes and renting/leasing a house that suits your needs at each stage of your life.

One proponent of this view is Phil Ruthven, CEO of Access Economics, and a well-known and respected commentator on financial matters. Mr Ruthven argues that over time most people will be better off renting, and paying the difference between their rent and the home loan interest otherwise payable into super and shares.

Mr Ruthven may be right. But there are (at least) two caveats: the first is that things need to unfold in line with his assumptions. The assumptions seem fair, so this is not such an issue. The second is that the client must have the discipline to invest regularly through shares and super.

This second one can be a big ask. While many people pay less rent than they would as loan interest, very few people invest the difference.

For most people, the benefit of home ownership lies in the fact that it involves forced savings. But for clients for whom disciplined saving is a real potential, Ruthven’s method makes great sense.

The Dover Group