Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
net worth assets & asset allocation
Old 08-11-2013, 01:34 AM   #1
Dryer sheet aficionado
 
Join Date: Sep 2004
Posts: 32
net worth assets & asset allocation

I read a lot about asset allocation between stocks, bonds, cash, and etc.

However, now that I have a substantial amount in those types of market investments, I am wondering what information or thoughts are out there about OVERALL asset allocation, i.e. as a part of total net worth.

For instance, around 20% of my assets are involved in my home (mortgaged). Let's say another 10% is related to "stuff" (cars, furniture, etc). Therefore when we talk about asset allocation, it is really just how to split up the allocation of the remaining 70%-- but I'd like to know more about how the full 100% should be best allocated.

Thoughts? Perhaps 70% spread across the various financial markets (stocks, bonds, etc) is too high and I should be diversified into something else (i.e., more real estate, small business, hard assets, cash, etc).
__________________

__________________
eryx is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 08-11-2013, 04:10 AM   #2
Moderator
Alan's Avatar
 
Join Date: Jul 2005
Location: Eee Bah Gum
Posts: 21,077
When I owned a house I always had a rough idea of what it was worth so knew roughly what my net worth was. However, I never chose to consider the value of the house in overall AA for investing purposes. (It would be different if we owned rental houses.)

My view was that you have to have somewhere to live and the house was an expense rather than an investment. (We owned 5 houses over a period of 26 years as we moved with our jobs).

That is just my experience but I can see the other point of view where people buy houses, improve their value while they live in them, then sell them at a profit, buying a cheaper house to begin the improvement process over again.
__________________

__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Now it's adventure before dementia
Alan is offline   Reply With Quote
Old 08-11-2013, 04:41 AM   #3
Recycles dryer sheets
padlin00's Avatar
 
Join Date: Oct 2010
Posts: 113
I agree with Alan, I don't count my home in my asset allocation, if I sell I'll use the $ to live somewhere else.

Suggest you read a book or 2 on Asset Allocation. 4 Pillars by Bill Bernstein or Rick Ferri's All About Asset Allocation, are well worth the price and will provide a well rounded education on the subject.
__________________
padlin00 is offline   Reply With Quote
Old 08-11-2013, 06:04 AM   #4
Recycles dryer sheets
 
Join Date: Mar 2007
Posts: 230
I think I get what you are talking about .. I think it depends on your aversion to risk or knowledge of other investments such as art, precious metals, classic cars etc.. I think it also depends on your interest in managing such assets such as rental properties etc. I view most of my "stuff" (except for my house) as worthless and have not purchased personal items as investments. In some respects it is similar to a hobby or a job. I like to play guitar but will not do it for pay as it will take away from the enjoyment I get from it. Same holds true for possessions, if I purchase a guitar I view it as valueless not something I am going to sell.

Bottom line is we all are different. Many people like managing rental properties for an income stream. Some people like buying and selling things. We are all different and have different preferences .. But isn't that great?
__________________
xyz is offline   Reply With Quote
Old 08-11-2013, 07:32 AM   #5
Thinks s/he gets paid by the post
obgyn65's Avatar
 
Join Date: Sep 2010
Location: midwestern city
Posts: 4,061
I do not include the value of my condo in my asset allocation either. My asset allocation is mainly based upon investable assets only.
__________________
Very conservative with investments. Not ER'd yet, 48 years old. Please do not take anything I write or imply as legal, financial or medical advice directed to you. Contact your own financial advisor, healthcare provider, or attorney for financial, medical and legal advice.
obgyn65 is offline   Reply With Quote
Old 08-11-2013, 07:39 AM   #6
Thinks s/he gets paid by the post
 
Join Date: Mar 2009
Posts: 1,433
If I can't sell it for a known amount at 4PM on any given weekday I don't count it. Likewise I agree we're all different.
__________________
Retired in 2016. Living off dividends / interest and a mini pension. Freedom.
foxfirev5 is offline   Reply With Quote
Old 08-11-2013, 08:36 AM   #7
Thinks s/he gets paid by the post
target2019's Avatar
 
Join Date: Dec 2008
Posts: 3,705
A case study to help:
Elderly couple has home asset, recently sold, so the gain is realized in 2013. The home estimate came from Zillow each year, and the percentage is home estimated value divided by total assets.

2006 2007 2008 2009 2010 2011 2012 2013
25% 24% 25% 20% 19% 15% 15% 12%

I tracked this number so that I would have a better estimate of their net worth. This information came into play when we considered their moving into an independent living arrangement, and needed to know where the substantial down payment would come from. Fortunately I found another arrangement which required no down payment, and has proved to be a wiser choice overall.

I suspect this information would be of no use in a typical asset allocation, unless you are getting to the time when the proceeds will be available for investing (as in the example above). If you do include the home in the AA, then might have to think carefully about what you will do when the home value rises and falls.
__________________
target2019 is online now   Reply With Quote
Old 08-11-2013, 09:08 AM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,403
In my retirement nestegg, I only include financial assets (taxable investment accounts, tIRAs, Roth IRAs, HSAs, CSV of a life insurance policy I own, etc) as all of these assets can be easily converted to cash and use to fund my retirement living expenses.

My net worth would be my retirement nestegg plus the value of my house, cars, boats, etc. I don't count these in my retirement assets because I use them and don't intend to sell them to fund my retirement living expenses.

However, the house, cars, etc do contribute to my retirement because if I didn't own them then my living expenses would need to be higher for house rent, car lease payments, etc and I would need a bigger retirement nestegg. So in a backwards way, these assets contribute to my retirement by reducing my living expenses rather than providing income/appreciation.

My target AA only applies to my retirement nestegg and is 42% domestic stocks, 18% international stocks, 22% investment grade domestic bonds, 5% high yield domestic bonds, 7% international bonds and 6% cash.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is online now   Reply With Quote
Old 08-11-2013, 09:51 AM   #9
Recycles dryer sheets
timwalsh300's Avatar
 
Join Date: Nov 2009
Posts: 131
Quote:
Originally Posted by padlin00 View Post
if I sell I'll use the $ to live somewhere else.
But one could move into a smaller place, or to a lower cost-of-living area, or start renting and suddenly have a lot more money available. I count the value of my car in my net worth for the same reason: I could trade down to something cheaper if necessary, or move to a city and live car-free.

I don't include other things like furniture or electronics in my net worth, however, because the market for those items seems to be much less liquid/transparent/efficient than the market for homes or used cars.

I agree that talking about asset allocation is different. It's not useful to talk about "cars" being 3% of my asset allocation since I can't easily rebalance that. But I am aware of how much I have tied up in my car, and in general I think it should be minimized since cars have a high carrying cost (same with a home).

Tim
__________________
timwalsh300 is offline   Reply With Quote
Old 08-11-2013, 12:52 PM   #10
Administrator
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 38,824
To me, asset allocation implies investible assets within the investment portfolio.

What percent of your assets you maintain as investible assets is your own choice, and is probably influenced by factors such as what stage in life you happen to be in. Like Alan, I do not consider my house to be an investible asset. The same is true for my car, or other possessions.

Quote:
Originally Posted by Alan View Post
When I owned a house I always had a rough idea of what it was worth so knew roughly what my net worth was. However, I never chose to consider the value of the house in overall AA for investing purposes. (It would be different if we owned rental houses.)

My view was that you have to have somewhere to live and the house was an expense rather than an investment. (We owned 5 houses over a period of 26 years as we moved with our jobs).

That is just my experience but I can see the other point of view where people buy houses, improve their value while they live in them, then sell them at a profit, buying a cheaper house to begin the improvement process over again.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities.

- - H. Melville, 1851
W2R is offline   Reply With Quote
Old 08-11-2013, 01:00 PM   #11
Moderator Emeritus
 
Join Date: May 2007
Posts: 11,031
I track 2 AAs. One including only "financial assets" like stocks, bonds, cash, etc... And one including everything, especially real estate (though I never include things like cars and furniture). If you only own the home you live in, it may not be useful to include RE in your AA, but that is not the case for me.
__________________
FIREd is offline   Reply With Quote
Old 08-11-2013, 02:17 PM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,380
Quote:
Originally Posted by W2R View Post
To me, asset allocation implies investible assets within the investment portfolio.

What percent of your assets you maintain as investible assets is your own choice, and is probably influenced by factors such as what stage in life you happen to be in. Like Alan, I do not consider my house to be an investible asset. The same is true for my car, or other possessions.
This is true, yet clearly a house, and often also a car for someone who is going to need it can be valuable assets that may but will not always lower annual outflow. When I paid cash for a condo in the same rental class as the apartment I vacated, my cash balances went down meaningfully. But even with reasonable accruals for occasional expenses here, I will need at least $9000 or so less annually for shelter. If interest rats were higher, it might be a push, but with our very low rates, and my desire to nail down at least the price of any dwelling I might buy now or later (instinct), it seemed like a sound move for solely financial reasons.

Same with a car- when my car was totaled about a year ago at first I was on autopilot to take my insurance check and get a new one, but I saw that even with giving little or no weight to the cost of a car, I realized that in my current environment a car would be more trouble than aid. If I didn't already have a girlfriend who doesn't mind me not having a car I likely would have bought one anyway. But my transportation outflows are much less without a car then they were with one, so for me the car was pure consumption, and not IMO properly part of assets. Had it not been crashed and totaled I would still be driving it; it never would have turned to cash.

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 08-11-2013, 02:26 PM   #13
Thinks s/he gets paid by the post
Katsmeow's Avatar
 
Join Date: Jul 2009
Posts: 3,392
I track my net worth and do count my home and cars (but not other items).

As far as allocation, it isn't part of the asset allocation but there is a point to consider.

That is, someone who has $1 million in assets invested at Vanguard and who received $20,000 a year SS who wants to spend say $55,000 a year has a much easier than time than someone who has $500,000 in assets invested at Vanguard and a $500,000 paid for home, who also wants to spend $55,000 a year. Now, the first person probably is spending a good amount of the $55,000 on rent, but has minimal home maintenance costs and no property tax (except insofar as included within rent). The second person has no mortgage, but may have considerably property taxes and has to repair and maintain the home. The second person though has a hard time because you can't safely take $35,000 a year from an invested portfolio of $500,000.
__________________
Katsmeow is offline   Reply With Quote
Old 08-11-2013, 02:39 PM   #14
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Posts: 3,862
Hard assets and investible assets don't seem to intersect a whole lot for me. The house is a potential Plan B, but not a formal part of the retirement plan. Everything else I just consider sunk costs. That's on the budgeting/spending/WR side, so again there is some interaction, but not in terms of AA.

If my portfolio was bigger I might increase my withdrawals, but I wouldn't think I had to buy more or better furniture or cars or houses to balance it out. Though that might indeed be the result.

If you had what seems like a lot of "stuff" compared to your portfolio value, it might be that you are a savvy shopper of stuff that holds its value well, instead of a world traveler that has memories instead of financially valuable stuff. Not really a factor in how your AA should look.
__________________
Animorph is offline   Reply With Quote
Old 08-11-2013, 11:42 PM   #15
Full time employment: Posting here.
gcgang's Avatar
 
Join Date: Sep 2012
Posts: 924
Quote:
Originally Posted by eryx View Post
I read a lot about asset allocation between stocks, bonds, cash, and etc.

However, now that I have a substantial amount in those types of market investments, I am wondering what information or thoughts are out there about OVERALL asset allocation, i.e. as a part of total net worth.

For instance, around 20% of my assets are involved in my home (mortgaged). Let's say another 10% is related to "stuff" (cars, furniture, etc). Therefore when we talk about asset allocation, it is really just how to split up the allocation of the remaining 70%-- but I'd like to know more about how the full 100% should be best allocated.

Thoughts? Perhaps 70% spread across the various financial markets (stocks, bonds, etc) is too high and I should be diversified into something else (i.e., more real estate, small business, hard assets, cash, etc).
The Talmud said to divide your assets into thirds: real estate, business and reserves.

I guess you could interpret this to mean a third your home, other RE and maybe your personal use "stuff" (although stuff is not really an investment, it's a future estate sale); a third in stocks; and a third in safe assets like cash, perhaps including bonds.

Advice that stands up to the test of time pretty good, IMO.
__________________
In theory, there's no difference between theory and practice. In practice, there is. YB
gcgang is offline   Reply With Quote
Old 08-11-2013, 11:55 PM   #16
Moderator Emeritus
 
Join Date: May 2007
Posts: 11,031
Quote:
Originally Posted by gcgang View Post
The Talmud said to divide your assets into thirds: real estate, business and reserves.

I guess you could interpret this to mean a third your home, other RE and maybe your personal use "stuff" (although stuff is not really an investment, it's a future estate sale); a third in stocks; and a third in safe assets like cash, perhaps including bonds.

Advice that stands up to the test of time pretty good, IMO.
Interesting. It is pretty much my current AA: 35% hard assets (mostly RE), 34% equities, and 31% fixed income (high quality bonds, CDs, and cash). Each third is diversified internationally.
__________________
FIREd is offline   Reply With Quote
Old 08-12-2013, 12:02 AM   #17
Recycles dryer sheets
GoodWishes's Avatar
 
Join Date: Jul 2013
Posts: 79
For our net worth, we include our primary home and investable portfolio. For our investable portfolio, we include our rental houses, stocks, bonds and cash. We don't include cars, furniture, etc.

We have a spreadsheet that tells us the percentages of everything within our net worth and within our investable portfolio.
__________________
GoodWishes is offline   Reply With Quote
Old 08-12-2013, 08:50 AM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,403
Quote:
Originally Posted by gcgang View Post
The Talmud said to divide your assets into thirds: real estate, business and reserves.

I guess you could interpret this to mean a third your home, other RE and maybe your personal use "stuff" (although stuff is not really an investment, it's a future estate sale); a third in stocks; and a third in safe assets like cash, perhaps including bonds.

Advice that stands up to the test of time pretty good, IMO.
Not to me. If my stocks and bonds were only 2/3 of my NW I would not have been comfortable ER - not even close. I don't see this advice as being practical in today's world.

Also see House Value as Percent of NW during Retirement and Percentage of net worth tied up in house threads.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is online now   Reply With Quote
Old 08-12-2013, 09:05 AM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2013
Posts: 5,326
Thomas Stanley has a breakdown on his blog of the top asset categories of those with $2M+ in wealth from IRS estate tax data:

"Let's look at the data from the IRS' estate returns computed during 2007-2009 for those decedants who were under 70, married at the time of their deaths and had a gross estate of $2M or more. The rank and the percentage of the aggregate wealth held in the top ten asset categories are as follows: 1. investment real estate (17.7); 2. closely held stocks (14.5); 3. publicly traded stock (12.6); 4. retirement assets (11.4); 5. personal residence (9.2); 6. insurance (7.2); 7. cash assets (6.9); 8. limited partnerships (4.1); 9. tax-exempt bonds (3.9), and 10. farms (3.1). "

The Top Ten Assets Owned by Millionaires
__________________
daylatedollarshort is online now   Reply With Quote
Old 08-12-2013, 09:28 AM   #20
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 11,963
While I track my total net worth in including home and "stuff", I do not include home or stuff towards funds available for retirement income or in setting our asset allocation. I would only include our home if we planned to radically downsize such that the sale would add funds to our portfolio, or had a second, third home we planned to sell, same with stuff - none applies in our case. Since presumably you plan to have a home on retirement, the funds aren't available for income, therefore excluded.

I only care about the ongoing expenses associated with our home and stuff, not the purchase price itself.

I've never seen a recommended asset allocation for retirement income purposes that included a primary home. It wouldn't have any meaning for us. YMMV
__________________

__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is online now   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


 

 
All times are GMT -6. The time now is 03:24 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.