Considering selling stock to fund your home purchase? Explore key factors like diversification, market volatility, tax implications, future earnings potential, and interest rates. Assess your liquidity needs, financial goals, and time horizon.
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“I have recently moved back to NZ from the UK with the family, and due to the nature of my work it really only makes sense to live in Auckland. We’re trying to buy a 3+ bedroom house in decent areas such as Hillcrest, Forrest Hill, Birkenhead (mainly for decent school zones, a reasonable commute, and future resale) but finding that we’re coming up about $50-100k short at auction. I don’t need anything flash, but what we’re looking at tends to be going for $1.1M and and above – and I only realistically have $1.05M to spend.
We have about $100k in a stock that I have always planned to hold for the long term as I’m bullish on the future value – but I’m realising I may have to sell some (hopefully not all!) in order to get the type of home we want.
My feeling is that the value of this stock could feasibly double, but there’s also a reasonable chance that we could gain that $100k in capital gains over the same timeframe. There is also the obvious tax disadvantages of holding US shares to consider as well.
So it seems like it might be a logical decision to cash out a decent chunk, in order to buy a house, right? Would love to hear any alternative points of view, or critiques of my reasoning.”
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Deciding whether to sell your stock to fund a home purchase is a significant financial decision, and it’s great that you’re considering various factors. Here are some aspects to consider:
Diversification:
It’s generally not recommended to have all your investments tied up in one asset class. Diversification helps spread risk. If a significant portion of your wealth is tied up in a single stock, selling some of it to diversify your investments might be a wise move.
Market Volatility:
The stock market can be volatile, and while you’re bullish on the stock’s future, there are no guarantees. Real estate markets can also have fluctuations, but they tend to be less volatile than stock markets. Assess your risk tolerance and the stability of the stock you hold.
Tax Implications:
Consider the tax consequences of selling the stock. Depending on your location and the length of time you’ve held the stock, you may be subject to capital gains taxes. Be sure to consult with a tax professional to understand the tax implications of selling the stock.
Future Earnings Potential:
Evaluate the potential future earnings of both the stock and the real estate market. While you believe the stock could double, it’s essential to weigh this against the potential appreciation in the real estate market. Consider factors such as the housing market trends in Auckland.
Interest Rates and Mortgage Terms:
Check the current interest rates and mortgage terms. If interest rates are low, financing a portion of the home purchase may be more attractive. Compare the cost of mortgage interest to potential gains or losses in the stock market.
Liquidity Needs:
Assess your liquidity needs. If selling the stock allows you to secure the home you want and provides financial stability, it might be a reasonable decision.
Financial Goals and Time Horizon:
Consider your overall financial goals and time horizon. If purchasing a home is a priority and aligns with your long-term plans, it could be a sound decision.
Ultimately, it’s crucial to weigh the pros and cons based on your specific financial situation, goals, and risk tolerance. Consulting with a financial advisor can provide personalized advice tailored to your circumstances. They can help you navigate the complexities of tax implications, investment strategies, and real estate decisions.
Hope this helps.
Regards, Clive Fernandes (Financial Adviser)
Director – National Capital
Disclosure: I am the director of National Capital, a KiwiSaver advice firm. The views expressed in this article are the views of the author. The information provided is of a general nature and is not intended to be personalised financial advice. You may seek appropriate financial advice from a Financial Adviser to suit your individual circumstances or contact National Capital.
