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Home equity is an asset.

Inherently, we know this because when we think about our net worth, we consider the money "on paper" that we have in our homes as part of our "money".

But home equity doesn't appear on a monthly bank statement; or on a year-end investment summary.  We don't see home equity anywhere, and so for a lot of homeowners, home equity gets relegated to "out of sight, out of mind" status.

That can be dangerous because ignoring the cumulative value of your home equity can lead to an over-weighted portfolio in real estate.

As every financial planner will tell you, diversification of your portfolio is one of the best ways to protect your investments.

In an attempt to reduce long-term interest costs, or to become debt-free, homeowners sometimes send extra principal payments along with their mortgage payments each month.  That dollar could have be invested anywhere, of course, but it wasn't.  It was invested in real estate. 

Now, I can't tell you how many near-retirement homeowners I've met that have saved just $40,000 for their Golden Years, but that are sitting on $400,000+ in home equity.  That's what we call having all of your eggs in one basket.

Before paying extra principal to your home, a homeowner is inadvertently racing to this same fate. 

Instead of paying extra principal, consider other asset classes that you'd like to grow.  Or, speak with an insurance representative about protecting the assets you already own.  Either option may be a better way to safeguard your portfolio.

Dan Green is an active loan officer. Email or call 513-443-2020. Dan is on Twitter at @mortgagereports.