WHEN I TOLD MY 19-YEAR-OLD SON that Iʼd decided to sell the house heʼd grown up in, his usual tough-guy act evaporated. He and three friends sat in my kitchen and wiped away tears. If the near-acre of land on which our two-story home sat had been easier to maintain—or if there were kids still living in any of the four bedrooms—I might have had a change of heart then and there. Instead, I took a deep breath and asked them to trust me. Clearly, downsizing from my empty nest to a smaller, more affordable home was a smart financial decision. But it was also a very tough one emotionally. “People might know intellectually that their home is a financial asset, but they think of it in emotional terms—as the place where they raised their kids, where they want to grow old,” says Gao-Wen Shao, director of Retirement Solutions at Merrill Lynch. Still, Shao adds, ignoring an asset that may be worth hundreds of thousands of dollars would be a mistake. “Itʼs critical that you examine all the financial resources you can bring to bear when figuring out a plan for pursuing your goals,” agrees Lorna Sabbia, head of Retirement Personal Wealth Solutions at Bank of America Merrill Lynch.

 “Your home might end up being the biggest asset on your balance sheet.”—Matthew Diczok, Head of Fixed Income Strategy, Global Wealth and Investment Management, Merrill Lynch Wealth Management and U.S. Trust Personal Wealth Solutions at Bank of America Merrill Lynch.

• So what role should your home play in your overall financial picture?
• And how can you take advantage of the home equity youʼve built up?

Is Home Ownership a Good Investment?

Thanks to the equity Iʼd built up, I ended up with a nice profit when I sold my home, but not everyone is so lucky. How much equity you have in your home is largely dependent on how long youʼve owned it, how large your initial down payment was and how high home prices are in your area at any given time.

Home appreciation is robust right now, but it tends to track the rate of inflation over time, says Michelle Meyer, head of U.S. Economics at BofA Merrill Lynch Global Research. In fact, over the long term, the typical home only  appreciates 3% to 4% per year, according to the Federal Housing Finance Agency.1 Stocks and bonds have traditionally returned considerably more, agrees Matthew Diczok, head of Fixed Income Strategy, Global Wealth and Investment Management, Merrill Lynch Wealth Management and U.S. Trust. But hereʼs the thing: Few of us invest 20% or 30% of our gross income in the stock market every month. 2 The typical  homeowner usually dedicates that much to his or her mortgage payment, and over the years those steady payments can really add up. Itʼs like enforced savings.