Great reading on a cool and rainy Sunday morning!
Given stocks and bonds are liquid like cash then money is fungible.
Retiree A has $2m in retrement assets and $10k in their local bank account that they use to pay their bills.
Retiree B has $1.5m in retrement assets and $510k in their local bank account that they use to pay their bills.
They both have the same gap amounts (spending less retirement income like pensions and SS)... which retiree is better off?
Good example. I can't say which is better off because I don't know what "better off" means. What I can say is this:
If Retiree A's and Retiree B's $2,010 have the same AA and substantially the same investments then their portfolio risk level is substantially the same, too.
If Retiree A's $2M and Retiree B's $1.5M have the same AA and substantially the same investments then Retiree B's risk level is lower than Retiree A's. The degree depends on the AA.
If Retiree A's $2M and Retiree B's $1.5M have the same AA and Retiree B looks only at the partial portfolio, then he/she is at risk for misunderstanding his/her actual risk level.
How abour Retiree C, who has a margin account with $2.5M invested, $500K of which is borrowed money? If he/she looks only at the AA of the $2.5M, then he/she is at risk for misunderstanding his/her actual risk level.
The point being, of course, that only by looking at all investable assets and liabilities can an investor get a good picture of his/her investment risk level. But, obviously, if the investor prefers to look at only part of the portfolio there's nothing morally wrong with that. It's a free country.
As I said previously, all of this is just mental accounting. It does not change the facts on the ground.