So your 401(K) is in the tank, your bank is offering 2% for Certificates of Deposit, and the car dealer wants you to pay him to take your SUV in trade. Is there any place to invest your money which is reasonably safe and provides a decent return? The answer depends upon how you define “return”.
Ever try to drive your 401(K) on a nice sunny day? How about stoking the fireplace in your Certificate of Deposit on a cold winter night? Here’s the point: there are a few things you can invest in that offer returns in addition to interest and capital gain. Take your home for example. Investing in improvements to your home has both an investment value and a “use” value, especially if the improvements make your home more enjoyable to live in and/or improve its energy efficiency.
Here are a few unconventional investment options to consider:
- If you have money to invest, consider paying down your mortgage early. If you currently have a 6 1/2 % mortgage, making extra principal payments is the equivalent of getting a 6 1/2 % return on your investment. While you are not getting an interest deduction in the future, you are also not paying income tax on your investment return.
- Invest in a child’s education. While the returns may be hard to quantify, it is hard to argue that a good education is not a valuable asset. There are various tax favorable ways to do this, including Coverdell Education Savings Accounts, which are essentially IRA’s established as savings accounts for educational expenses.
- Look into the possibility of borrowing from your 401(K) account, for which you would pay yourself interest, and using the loan proceeds to eliminate credit card debt charging a higher rate of interest. This requires serious financial discipline, but offers you the opportunity of paying yourself a decent return and eliminating exorbitant interest charges.
- Consider investing in home improvements that both enhance the resale value of your home and improve its day to day livability. These include kitchen, bath and energy efficiency improvements.
We don’t hold ourselves out as investment advisers, but these common sense tips can’t be too far off!