|
|
Asset Allocation and Alternatives
12-03-2021, 10:22 AM
|
#1
|
Recycles dryer sheets
Join Date: Mar 2016
Posts: 84
|
Asset Allocation and Alternatives
When you calculate asset allocation, do you include your home value as an alternative asset? I tried to search and could not find this discussed.
TY,
M
|
|
|
|
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!
|
12-03-2021, 10:29 AM
|
#2
|
Thinks s/he gets paid by the post
Join Date: Feb 2014
Location: NW Pennsylvania
Posts: 1,820
|
Quote:
Originally Posted by ecowtent
When you calculate asset allocation, do you include your home value as an alternative asset? I tried to search and could not find this discussed.
TY,
M
|
I don't.
|
|
|
12-03-2021, 10:39 AM
|
#3
|
Thinks s/he gets paid by the post
Join Date: Mar 2012
Posts: 3,931
|
You can if you like. However, just be cognizant that if you base your withdrawal rate on a total which includes the house, you may be making a mistake...unless you are willing to sell the house if you begin to run out of other assets to sell to maintain the withdrawal rate and standard of living.
|
|
|
12-03-2021, 10:43 AM
|
#4
|
gone traveling
Join Date: Aug 2020
Posts: 682
|
Net worth = all assets - all liabilities
All assets includes real estate of all descriptions
All liabilities includes all obligations including mortgage
Allocation is commonly used in context with securities ie stocks and bonds.
Do be sure to include real estate and mortgage in the net worth calculation for your FIRE planning.
|
|
|
12-03-2021, 10:43 AM
|
#5
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,370
|
Quote:
Originally Posted by ecowtent
When you calculate asset allocation, do you include your home value as an alternative asset? ...
|
No, I don't include my house as part of my retirement nestegg because my house doesn't pay me an income and I can't (conveniently) withdraw from it for spending.... it is a place where I live... the financial benefit is that because I own it I don't pay rent but I do pay property taxes and insurance so my spending is lower than if I didn't own the house.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
|
|
|
12-03-2021, 10:44 AM
|
#6
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2008
Posts: 13,146
|
I don't. Nor do I count the assets in my HSA and emergency fund.
IMO, Asset Allocation is somewhat of a subjective concept. I guess do what works best for you.
__________________
Have you ever seen a headstone with these words
"If only I had spent more time at work" ... from "Busy Man" sung by Billy Ray Cyrus
|
|
|
12-03-2021, 11:29 AM
|
#7
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2007
Posts: 13,227
|
No. I may not live here forever, but I can't say for sure where I go next would be less expensive. If funds are running low I can certainly downsize (both price and size) but it's not part of my plan.
Indirectly it is part of the consideration. I don't have a mortgage, so I feel I can be a little more aggressive with my investments.
|
|
|
12-03-2021, 12:15 PM
|
#8
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2017
Location: City
Posts: 10,351
|
Our houses are part of our net worth, just like our cars and some other expensive possessions but that stuff is not investable, hence not included in our investment planning calculations.
But hey, its your calculation. You can use whatever rules you like.
__________________
Ignoramus et ignorabimus
|
|
|
12-03-2021, 01:41 PM
|
#9
|
Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 4,366
|
For asset allocation, no we do not include the home value. A home is too illiquid and we are not planning on selling ours. Kind of tough to rebalance an AA that includes a home, though not impossible (perhaps using a HELOC). I think the ability to rebalance and otherwise cope with market ups and downs is the main reason for an asset allocation.
We do include our home's net value in net worth calculations, but that's just informational for us. And of course our home is included in our overall financial planning.
|
|
|
12-03-2021, 01:55 PM
|
#10
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,145
|
Quote:
Originally Posted by ecowtent
When you calculate asset allocation, do you include your home value as an alternative asset? I tried to search and could not find this discussed.
TY,
M
|
It’s just rebalance my retirement accounts that I withdraw from annually for income. So I only include my retirement accounts in my asset allocation calculation. Certainly not my house. It’s pretty hard to rebalance bits of your house, or withdraw 4% of it every year.
__________________
Retired since summer 1999.
|
|
|
12-03-2021, 01:55 PM
|
#11
|
Recycles dryer sheets
Join Date: Mar 2016
Posts: 84
|
what is an alternative?
njhowie- thank you that makes a lot of sense to me.
What is an alternative in your portfolio?
|
|
|
12-03-2021, 01:58 PM
|
#12
|
Thinks s/he gets paid by the post
Join Date: Aug 2014
Location: Chicago West Burbs
Posts: 3,018
|
IMO, Net Worth is a different measurement than Asset Allocation. AA is, again my opinion, allocation of investments that are somewhat flexible. one can move assets from one subgroup to another in order to keep one's risk stable over time. I don't anticipate selling my primary home in order to rebalance my AA. Therefore, it isn't in my AA calculations. Net worth is whatever you want it to be. For me it is all my financial balances plus my home value minus debt. It has nothing to do with sensitivity to market trends.
|
|
|
12-03-2021, 02:09 PM
|
#13
|
Thinks s/he gets paid by the post
Join Date: Nov 2014
Location: Austin
Posts: 1,384
|
Quote:
Originally Posted by ecowtent
When you calculate asset allocation, do you include your home value as an alternative asset? I tried to search and could not find this discussed.
TY,
M
|
I don't. From a financial point of view, I only use it as part of my overall net worth only.
I do know some who have a plan to sell and downsize in the future. What they do is estimate the net proceeds from the future sale at an estimated future date minus the purchase price of the replacement house, with any remainder being considered part of their portfolio, discounted to the present day. Some also do something similar with a future inheritance, future incomes from SS and/or a pension, etc...
|
|
|
12-03-2021, 02:44 PM
|
#14
|
Thinks s/he gets paid by the post
Join Date: Nov 2013
Location: Twin Cities
Posts: 3,941
|
We project $2 million in home equity at age 80, so I can’t ignore it. I’m treating it as SHTF Insurance when I’m a senior citizen.
|
|
|
12-03-2021, 03:35 PM
|
#15
|
Thinks s/he gets paid by the post
Join Date: Mar 2009
Posts: 2,985
|
Quote:
Originally Posted by Markola
We project $2 million in home equity at age 80, so I can’t ignore it. I’m treating it as SHTF Insurance when I’m a senior citizen.
|
Good point. While I don't count our primary residence or our second home it probably should be a factor. While not quite on your scale our lakehouse should be a plan C following the Roths for future calamities. If DW or I got that far we would certainly beat the odds.
__________________
Took SS at 62 and hope I live long enough to regret the decision.
|
|
|
12-03-2021, 05:23 PM
|
#16
|
Thinks s/he gets paid by the post
Join Date: Dec 2018
Location: DuPage County IL
Posts: 2,727
|
Quote:
Originally Posted by PaunchyPirate
I don't.
|
while we include our residence in our total net worth we do not include it in our AA.
__________________
Rich
Ham Radio, Sport Pilot, RVer
FIRE: 8/11/2005, age 55y,1d
Dispatcher, then shift supv, then administrator for a regional 9-1-1 call center
|
|
|
12-03-2021, 05:34 PM
|
#17
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2013
Location: Limerick
Posts: 5,655
|
We include our home and vacation homes in our Net Worth, but not asset allocation. The reason is in 2026 the Estate Tax reverts to pre-2017 levels adjusted for inflation. We are currently just below that level. We don’t want our kids to have to pay Federal Estate taxes on top of the PA Inheritance tax that they’ll already be hit with. So we’re watching our Net Worth closely and taking measures to avoid it.
For asset allocation of investments, we don’t include real estate.
|
|
|
12-03-2021, 05:34 PM
|
#18
|
Moderator Emeritus
Join Date: Apr 2011
Location: Conroe, Texas
Posts: 18,731
|
I look at our paid for house as a LTC policy replacement.
__________________
*********Go Yankees!*********
|
|
|
12-03-2021, 05:51 PM
|
#19
|
Thinks s/he gets paid by the post
Join Date: Feb 2021
Posts: 2,351
|
I do not count our house in the asset allocation. AA is for our investments and our house is not an investment. AA is stocks, bonds, and cash. If we had other investments like rental property, precious metals, crypto, etc. then I would include those items since they'd be part of the investment portfolio.
|
|
|
12-03-2021, 06:22 PM
|
#20
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2016
Location: Colorado
Posts: 8,971
|
I don’t include the house or other land that we own in my asset pool to fund retirement, I do, however, include the sale of those assets in my long term plan. I know that sounds odd, but the retirement pool funds needs over the next X years. The real estate likely will fund a transition into some sort of assisted living down the road.
|
|
|
|
|
Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
|
|
Thread Tools |
|
Display Modes |
Linear Mode
|
Posting Rules
|
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts
HTML code is Off
|
|
|
|
» Recent Threads
|
|
|
|
|
|
|
|
|
|
|
|
|
» Quick Links
|
|
|