From Here to Financial Happiness

Day Forty Three Be an Owner

Whether it's cars, houses, or investing, we face a major financial decision: Do we want to be an owner? With cars, that means choosing to purchase the vehicle, rather than leasing it. With housing, it's a question of buying vs. renting. With investing, we need to choose between purchasing stocks and stock funds – which makes us a part owner of the companies involved – or buying more conservative investments such as bonds, certificates of deposit and savings accounts, where we're simply lending money and receiving interest in return.

Most of us will want to be owners, assuming we have a long enough time horizon. If we want to drive a new car but plan to keep it for just three years, leasing may be the right choice. Similarly, we should probably rent a home if we can't see staying put for at least five years. Over such a short time horizon, we are unlikely to clock enough price appreciation to offset the hefty cost of first buying a house and later selling it. Ditto for stocks: If we will need our money back in less than five years, we should stick with conservative investments, because we may not have the time needed to ride out a downturn in stock prices.

But if our time horizon is longer, being an owner can make a heap of sense. Admittedly, owning a house is more of a hassle than renting and owning stocks is more nerve‐racking than holding bonds. But the rewards should also be greater. By buying a house, we lock in a large part of our monthly living ...