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Old 12-28-2016, 12:02 PM   #21
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Originally Posted by COcheesehead View Post
Maybe my fresh perspective is just want is needed around here.
Please don't take it personally.

I was just pointing out that there is often great amusement here when people start quibbling over what they want net worth to mean.

As you can see already.
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Old 12-28-2016, 12:05 PM   #22
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Originally Posted by NW-Bound View Post
I think people knew what net worth is, but they were trying to make the point that only investable assets are meaningful for the purpose of generating cash flow to maintain the existing lifestyle, and also to support the other "cash draining" assets.
I do understand this concept. However, if you are discussing investable assets, call them investable assets. Definitions need to be consistent. Otherwise we are comparing apples and oranges.
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Old 12-28-2016, 12:11 PM   #23
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Pension income should be looked at as part of cash flow and not a defined asset included in net worth, unless it has a lump sum option that can be defined.
Whoa there Pilgrim! I beg to disagree. Sort of.......

One's pension is an income producing "Phantom" asset. But, it is real. We just don't know how to evaluate it.


Suppose one has a pension of $1000 a month for life. The pensioner lives for 5 years and collects $60,000. So, that pension could be said to have the value of aprox $56,600 assuming it earns 3% a year, no inflation adjustments and is zeroed out after the 5 years.

OTOH, if our pensioner lives 35 more years with the same assumptions, the pension has a phantom value of over $265,000.

Just because we don't know the pension's value until death, doesn't mean it doesn't have a value, IMHO.

Perhaps an accountant can tell us what the official accounting rules say about pensions.
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Old 12-28-2016, 12:17 PM   #24
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I do understand this concept. However, if you are discussing investable assets, call them investable assets. Definitions need to be consistent. Otherwise we are comparing apples and oranges.
Agree.

When people try to see where how their finances fit among peers, the net worth number is better to see how much one manages to keep.

The distinction of investable assets becomes important when newcomers try to understand what it takes to retire early. This is actually better grasped with an understanding of SWR.
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Old 12-28-2016, 12:22 PM   #25
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I think people knew what net worth is, but they were trying to make the point that only investable assets are meaningful for the purpose of generating cash flow to maintain the existing lifestyle, and also to support the other "cash draining" assets.
Apples and oranges. Net worth is net worth. It is a defined point in time. It is like your bank balance. It is what it is. Now how you manage your assets to generate cash flow is another story.
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Old 12-28-2016, 12:23 PM   #26
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The more rigid the definition, the less useful it is in real life.
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Old 12-28-2016, 12:23 PM   #27
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Please don't take it personally.

I was just pointing out that there is often great amusement here when people start quibbling over what they want net worth to mean.

As you can see already.
Nothing personal taken. I knew what you meant and got a chuckle out of it myself. I didn't know what I was stepping into. Not the first time that has ever happened to me.
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Old 12-28-2016, 12:29 PM   #28
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The more rigid the definition, the less useful it is in real life.
See, I think it is just the opposite. The more rigid, the more useful, because everyone understands it equally as opposed to their personal definition of it.
I think what is getting lost here is that people jump to what they do with their net worth and then it becomes a discussion of the application and management of assets and no longer about a singular measure at a single point in time.
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Old 12-28-2016, 12:31 PM   #29
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Whoa there Pilgrim! I beg to disagree. Sort of.......

One's pension is an income producing "Phantom" asset. But, it is real. We just don't know how to evaluate it.


Suppose one has a pension of $1000 a month for life. The pensioner lives for 5 years and collects $60,000. So, that pension could be said to have the value of aprox $56,600 assuming it earns 3% a year, no inflation adjustments and is zeroed out after the 5 years.

OTOH, if our pensioner lives 35 more years with the same assumptions, the pension has a phantom value of over $265,000.

Just because we don't know the pension's value until death, doesn't mean it doesn't have a value, IMHO.

Perhaps an accountant can tell us what the official accounting rules say about pensions.
So should my future stock and bond dividends be included in my net worth calculation?
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Old 12-28-2016, 12:32 PM   #30
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Pension income should be looked at as part of cash flow and not a defined asset included in net worth, unless it has a lump sum option that can be defined.
it's easy to quantify the value of a pension, happens almost every time someone with a pension gets divorced

check out section 414(p) of the internal revenue code
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Old 12-28-2016, 12:33 PM   #31
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So should my future stock and bond dividends be included in my net worth calculation?
no, they are baked into the price of the security
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Old 12-28-2016, 12:35 PM   #32
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Perhaps an accountant can tell us what the official accounting rules say about pensions.
check out asc715
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Old 12-28-2016, 12:36 PM   #33
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no, they are baked into the price of the security
I agree they should not be included, but they are not "baked" in over the long term, 3-6 months maybe, but the market reevaluates with every earnings release.
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Old 12-28-2016, 12:43 PM   #34
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What are the odds that everyone will agree on the definition of net worth?

I bet on zero!
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Old 12-28-2016, 12:53 PM   #35
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I agree they should not be included, but they are not "baked" in over the long term, 3-6 months maybe, but the market reevaluates with every earnings release.
bond prices are directly related to the coupon payment
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Old 12-28-2016, 12:58 PM   #36
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bond prices are directly related to the coupon payment
...in relation to other factors like interest rates, credit rating, etc.
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Old 12-28-2016, 01:05 PM   #37
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The more rigid the definition, the less useful it is in real life.
Depends on what personal "asset" you're talking about
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Old 12-28-2016, 01:09 PM   #38
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Depends on what personal "asset" you're talking about
I would have bet that politics somehow would have crept into this discussion way before sexual innuendo.
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Old 12-28-2016, 01:20 PM   #39
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See, I think it is just the opposite. The more rigid, the more useful, because everyone understands it equally as opposed to their personal definition of it.
I think what is getting lost here is that people jump to what they do with their net worth and then it becomes a discussion of the application and management of assets and no longer about a singular measure at a single point in time.
But in my opinion you've come up with a standard definition of net worth that really doesn't have a very practical meaning other than to be able to compare things. Now we know how many oranges we each have, but I also have a lot of apples, and I happen to like apples better than oranges, so I don't really care that you have a couple more oranges than me.
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Old 12-28-2016, 01:21 PM   #40
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But in my opinion you've come up with a standard definition of net worth that really doesn't have a very practical meaning other than to be able to compare things. Now we know how many oranges we each have, but I also have a lot of apples, and I happen to like apples better than oranges, so I don't really care that you have a couple more oranges than me.
Cheesehead is using the standard accounting definition.
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