Asset Allocation Ideas when you have a Mortgage

[jhogue]

It's probably easiest & safest to consider your home a consumption item rather than an investment.

+1

And to the extent that I track my home equity in my overall net worth, I don't bother trying to wedge it into the PP framework. I'm just happy to have another non-financial store of wealth that I can maybe tap into in the future if I decide to sell and move on.

+1+1

As I was taking a break from painting my garage this afternoon, I had a blinding glimpse of the obvious: How true it is that my house is a consumption item and not an investment!

It occurred to me that my cash does not need to be mudded. My bonds don’t need to be sanded. My stocks don’t need to be primed. My gold certainly doesn’t need to be painted.

Like Tyler, I track my home equity but do not include it in net worth. It is always nice to have a durable asset that can appreciate in the long term, as long as you don’t let your mortgage and other house bills crowd out your monthly budget in the short term.

P.S.: Some personal labor may be involved. Do you have a tool box?

[barrett]

I definitely consider our home to be a consumption item but I also consider it when calculating net worth. At some point that home equity can be tapped into either by selling a house or doing a reverse mortgage.

Check out this retirement planner:

https://www.i-orp.com/gamma/extended.html

It allows one to input home equity and also an age at which one would be likely to sell a home. While it's true that everyone needs a place to live, what form that takes can vary greatly (from living in a van down by the river to an upscale retirement facility).

I also like the idea of owning a home that is a relatively low percentage of one's net worth. In many places that's easier said than done but it can prevent a lot of money stress over time.

The other thing I wanted to throw into the mix is that recurring costs (in particular property taxes) should never be underestimated. I'd place a higher priority on trying to minimize those than getting one's exact AA-to-mortgage formula figured out... not that the two things are mutually exclusive.

[AnotherSwede]

I agree with Desert.

Considering the mortgage a fixed income asset seems most reasonable. In my country where "everyone" has a 3 month duration mortgage it is cash.

With a mortgage interest of about 1% and savings interest of 0.5% and gvmt bonds negative you pay down the mortgage before loading up on NIRP bonds.

[Dieter]

I don't include home in retirement savings, but shows up in net worth -- can be plan B or C -- sell and move someplace cheaper.

And payoff date impact on fixed monthly expenses.