net worth assets & asset allocation

[Koolau]

Except for the RE crash years, a reasonably well located home plus lot would have had to suffer very bad luck to lose money.

It isn't very hard to figure out how your city is going to do, and it isn't very hard to pick the better districts of your city.

Agree completely. Our area never lost more than 20% in value even during the crash. Much of this stability was due to the "enlightened" (okay, maybe lucky) lending practices locally. "No doc" and other high-risk loans were rarely offered, so the cascade effects seen in other areas never materialized when the market got a little soft. Also, by being a very desirable area where "they aren't making any more land", prices have a natural "stability" built in. This has played out over many cycles in the past.

We were able to play the system to an extent and trade "up", locally. Our old area lost about 10% during the crash while our current area lost about 20%. Now, prices have rebounded to near pre-crash levels, so we "made" money (if we were to sell).

Having said all that, I still don't think of the home as an investment. Neither do I look at it as just an expense. It's sort of a "neutral" item that has characteristics of both. I don't look at it as part of the AA, but I certainly look at it as an asset which adds stability to the FIRE plan.

To the OP's question about a "rule of thumb", respectfully, I don't see that as being very useful - assuming that investable assets and other sources of income allow one to live in one's chosen abode without fear of running out of money. So, if half one's assets are in a house and the other half generate more than enough money to keep one IN that house, who cares about the percentages of total assets? Just my opinion, so YMMV.

 

[eryx]

Thanks for the great discussion everyone. From reading the links it seems like my home value is within a typical range. And since the home is generally the largest priced "stuff", that's a good one to look at.

I agree that it doesn't really matter-- but having too large a home (and other "stuff") would delay early retirement (the focus of this forum) since one would then need to work longer to have the cash flow to support it (or to purchase it).

Another interesting data point would be the spending patterns of those who successfully retire early vs. those who don't and perhaps even how it relates to work/retirement timing. That is, total spent on stuff vs investments, as compared to # of working years.

 

[butterfly]

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.

We do this too.

My assets are investments that make me money. My principal place of residence is a liabilty as it costs me money.

(I know, technically it saves me rent money, but I still do not include it.)

 

[MRG]

When DW has to do her public disclosure, the house is part of NW. But for retirement planning, we don't count it. You could pay the electric bill by selling one a month for seven or eight years, but it is something I don't want to start anytime soon. In fact, I don't see myself not adding to it every birthday for the next ten or fifteen years.

L.D. if your selling let me know. Say for a nice W.C. Supergrade maybe 2 months of electricity.

MRG

 

[MikeTN]

I think you should take the equity in the house and in other real estate (vacation house, farm, etc) into account in retirement planning.
I recently decided to withdraw 10% of my retirement assets to pay off a mortgage. It made sense to me because it reduces my expenses, and also because interest rates on retirement funds invested for safety are very low. Now some would say that my farm and house are not very liquid, so why consider them to be retirement assets if you won't sell. Well, we will sell the farm at some point, and as far as the house goes, it's value will become available to pay for assisted living/nursing home care should that become necessary.
The objective of my retirement planning is to maintain my spending with minimal risk of running out before I die. Firecalc says no problem, unless I live to 95, or the future is worse than the past. But before I hit 95 I would expect to either sell the house or (should I be healthy enough to stay there) I could take out a reverse mortgage if returns on my portfolio have been disappointing. If I were renting these options would not be available to me and I would have to count on spending less from my retirement assets each year.