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Old 11-08-2013, 09:23 AM   #61
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As I have said, people still in the accumulator phase tend to have a larger portion of their NW in their home which they are still paying off. It is natural to include the increasing home equity to measure one's progress in wealth building.

On the other hand, people who have retired tend to have their home already paid off. As they are already settled and do not plan to sell to raise cash, they are more concerned with their investable portfolio or income-producing assets, which must generate the cash flow to support their home among other living expenses.

It is not really about NW definition, but rather the different mindset. The point is not at all about NW definition.

My NW does include my homes, but the truth is that I pay a lot more attention to my Quicken screen bottom which has only my investable portfolio. I did not bother to enter the home estimated values, nor that of the few gold coins that I have, nor the sacks of cash used as door stops.

Just joking about the door stops. The sack of cash is well hidden.

Joking again.


PS. If I buy homes to flip or have rental homes, I am sure I would include their values on my Quicken screen along with the income they generate.
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Old 11-08-2013, 12:38 PM   #62
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I finally realized my 90% asset allocation put an unnecessary risk or as William Bernstein wrote in one book, "When you've won the game it is time to stop playing." I went to 60% equities in August 2007. That helped dampen the hit but it still hurt. Fortunately, it has all come back and more. In 2010 I went down to 40% equities.

So, why am I still coming in here?
We figured out the same thing. We had won the game in 2007. We are trying hard not to make the same mistake again. We lowered our stock allocation and hope to downsize the house in the current housing bubble market before we see another $300K drop in the home price.

If we buy a house for ~$300K even if the bubble pops again I don't see its price going to zero, so our paper losses won't be as great as they were during the last housing bust.
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Old 11-08-2013, 03:26 PM   #63
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As I have said, people still in the accumulator phase tend to have a larger portion of their NW in their home which they are still paying off. It is natural to include the increasing home equity to measure one's progress in wealth building.

...
It is not really about NW definition, but rather the different mindset. The point is not at all about NW definition.
Agree on both counts. When I look at my "number" to try to be FI at 42, I don't include the equity in my home. Sure, if I sell the house and start renting, all of a sudden that's $300K closer to my "number", but since it's not there yet, I am just not counting on it.

All that matters to me is making that "number" (since it's based off of expenses and desired savings/income generation). The equity in my home doesn't factor into that since I'm still paying it off.
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Old 11-08-2013, 03:30 PM   #64
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So all people who rent should subtract 300 x monthly rent from their net worth. How many do this?
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Old 11-08-2013, 03:55 PM   #65
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All of the business classes I took specified net worth as total assets minus total liabilities. House value net of mortgages, loans, is included in net worth. However, I tally house value separately and only use portfolio value as my pool of retirement $, and in figuring withdrawal rate
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Old 11-08-2013, 04:03 PM   #66
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So all people who rent should subtract 300 x monthly rent from their net worth. How many do this?
My apologies.. I was the OP who started this wild fire unwittingly with this NW question.

May be we can come to a compromise as per Fermion

Say your life Expectancy = L;
Rent of a place you would like to live in ( or comparable to your house) = $R
Current equity in your house = (Cash value - Mortgage) = $H
Maintenance + Mortgage during remaining life expectancy = $M
L*R = cumulative rent payments in current $

Renters should consider L*R as their implicit liability.

Home owners can do one of the following:
consider H-(L*R) as an asset (willing to sell and rent)
consider H-M as an asset (willing to live in the house till the end)
or some combination that includes renting their current home out and living elsewhere.
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Old 11-08-2013, 04:15 PM   #67
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Sometimes this discussion board makes me feel like such a simpleton.

I see a term like "net worth" and I say to myself "That's simple: assets - liabilities=NW." BAM! Done.

It never occurs to me to add in all the caveats and wherefore's, etc. of some of the other posters.

An investment portfolio is a different beast, thus a different number.
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Old 11-08-2013, 04:40 PM   #68
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Got married in 96. We had $5k in debt and an 11 yr old DD. Fast forward to 05 to our first $500k. 2013 was our $1mil mark. We now live on this and occasional w*rk.

Put DD through & married along the way. Living in Mexico on a modest amount. Still traveling a couple times per year for renewal of our visas. Nice to travel to visit with no necessity to return back until our DD or friends get tired of us. :-D
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Old 11-08-2013, 04:45 PM   #69
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Sometimes this discussion board makes me feel like such a simpleton.

I see a term like "net worth" and I say to myself "That's simple: assets - liabilities=NW." BAM! Done.

It never occurs to me to add in all the caveats and wherefore's, etc. of some of the other posters.

An investment portfolio is a different beast, thus a different number.
I just take my monthly expenses and add inflation and look at the amount I'm bringing in to cover it. Simple minds think a lot less...

If I stay cash flow positive, I'm good.
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Old 11-08-2013, 06:00 PM   #70
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Ok, I think we finally have a consensus and we can live and let the poor horse die. (I used to say live and let the horse live, you know I did!)

Net worth includes the value of all of your assets, including grandma's false teeth you inherited minus the liabilities (such as getting said teeth cleaned).

Invested worth might include your house as an asset, depending on your view of real estate. If you think real estate generally keeps up with inflation the same way I-bonds, TIPs, and precious metals do, then you would include it in your invested worth minus the investment expense of the loan.

For the people who like to fool themselves or others into thinking they are poorer than they really are, they should not include the value of their house as an asset.

Sound about right?
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Old 11-08-2013, 06:12 PM   #71
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The road from $250K to $700K was extremely fast for me. Too fast, as I had about 95% of my portfolio in equities, so I rode the stock market all the way to the top. Diversified? That was a hedge against ignorance, I thought. So, needless to say, the market crash brought me back to earth in a painful way. After 2008, I balanced my portfolio with a 60/40 (equities/bonds and cash) allocation. I hit the $1 mil mark earlier this year, and call it greed or passion, but I am ready to go back to work, and start working on that 2nd million dollars.
Biggest lesson I learned was, the single biggest driver of your portfolio performance is asset allocation. Don't try to time the market, as more money has been lost by investors trying to time the market, than what they would have lost had they just stayed the course.
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Old 11-08-2013, 06:17 PM   #72
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I bought my first house in 1999 for $279k. It was worth $750k before the housing bubble burst and it went down to $500k. It's slowly worked it's way back up to $600k or so. Personally, it's just way too much to track and it's way to volatile for an asset that I don't plan on realizing any gains on.

Yes, I know it's worth something, and yes, we keep loose track of what it's worth every few years. In my backup plans, it is something I depend on. But my goals for my invested assets do not include my house equity.

To the original topic, I was at 500k in 2007, and hit 1 million at the end of 2012. So far the path to 2 million is looking good, since we got up to 1.24 million last month. Investment gains are starting to be WAY more important than contributions.
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Old 11-08-2013, 06:31 PM   #73
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You are missing a lot of fun, then. What is the point of having a bunch of money if you can't brag about it? (I'm pulling your leg.)
There is a guy at the place I volunteer that often discusses how he is a self made millionaire.....and how he got rich in the early days of plastic manufacturing - everyone avoids him...not a good ploy to impress and make friends!

PS I know you were kidding - but we need to send this gentleman the memo
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Old 11-08-2013, 06:35 PM   #74
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and how he got rich in the early days of plastic manufacturing
Ok, I have to ask...was his name Benjamin Braddock?
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Old 11-08-2013, 06:46 PM   #75
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If all houses increase to 3 million does that mean you are financially independent and can retire? No, not unless you want to live on the street or in a home-made RV.

Likewise, if your investments go up to 3 million you can retire and use the money to live independently.

Therefore although the house increases your net worth it does not provide independence which in my opinion is the destination of The Road to a Million.
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Old 11-08-2013, 07:01 PM   #76
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I see a term like "net worth" and I say to myself "That's simple: assets - liabilities=NW." BAM! Done.

An investment portfolio is a different beast, thus a different number.
Overall, I agree with this. That said, I think talking about that kind of NW is kinda meaningless. I guess "portfolio" would be the accurate way to talk about this "road to 1M" since that's what really matters.
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Old 11-08-2013, 07:10 PM   #77
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Overall, I agree with this. That said, I think talking about that kind of NW is kinda meaningless. I guess "portfolio" would be the accurate way to talk about this "road to 1M" since that's what really matters.
Seems to me that either way of looking at it is just as meaningful. The key is consistency for comparisons sake.
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Old 11-08-2013, 07:12 PM   #78
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No matter how one figures his number, in the end it is all about cash flow. For

"Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery." - Charles Dickens
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Old 11-08-2013, 07:17 PM   #79
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No matter how one figures his number, in the end it is all about cash flow. For

"Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery." - Charles Dickens
Absolute truth.
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Old 11-08-2013, 07:24 PM   #80
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And depends on how one lives, an amount acceptable to one may be insufficient for another.

"You can live well if you're rich and you can live well if you're poor, but if you're poor, it's much cheaper." -- Andrew Tobias

So, there's no absolute amount that one needs. Of course, there's some basic needs, but it really is not much that one must have, come to think of it.

I can live on much less than I do now if I have to. That's particularly true now with ACA subsidy for insurance. So, I do not worry about the market that much. I just hate to see that Quicken bottom line dropping.
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