PP with large amount of illiquid real estate

[walkerjks]

I'm looking to build a PP without gold, and I would like anyone's feedback.

The problem with doing a straight PP is that roughly 70% of my net worth is tied up in land (a combination of cropland and grassland).  None of this is going to be sold.  This leaves me  with a couple options:

1) Do a PP (with gold) with the remaining 30% of my net worth.

2) Do a PP (without gold) with the remaining 30% - so a third in "cash", a third in LT treasuries, and a third in equities.

I lean to 2 as it seems that land serves some of the same function as gold - it's an inflation hedge.  With inflation, both the land values and the income (as commodity prices increase) will tend to go up.  Land prices certainly aren't going to track gold prices, but at such a large part of my net worth, it would seem like they will produce all the explicit inflation hedge I need.  If the land loses enough value or my other savings drive down the percentage in land to some lower value, I would consider adding gold to the mix, but at 70%, I'm a long way from that point.

What are your thoughts? 

[Storm]

I think HB would have said your land is part of your VP, and if you want to do a PP with the remaining 30%, go right ahead.  Real Estate does provide some basic inflationary hedging, but it is not very liquid and can be seized by local and state governments very easily during any type of financial crisis.

[moda0306]

Well the amount you can't afford to lose theoretically should be your PP, so if that 30% is sufficient, then I think you're ok keeping that a normal PP.

If, hypothetically, the entire 100% of your net worth is money you don't think you can afford to lose, but you can't get rid of the land, you may want to rethink the allocation a little.  Land is funny, though, because it does ok during inflation, but if it's farm land, deflation & recession aren't necessarily so bad either... you'll have to decide where your exposure is by owning that much land.  You would probably consider yourself "over-hedged" for inflation, and would maybe cut gold back a bit.

[walkerjks]

Well the amount you can't afford to lose theoretically should be your PP, so if that 30% is sufficient, then I think you're ok keeping that a normal PP.

I like this line of thinking.  Ultimately, I can lose the entire 30% and not really affect things all that much.  So I don't think I need the gold to protect the portfolio as much from really bad years in bonds and equities.  I'll take the larger drawdowns in the 30%.  I'm still reluctant to simply treat it all as a variable portfolio and I do want to keep things simple - the gold simply seems superfluous given the land. 

In any case, thanks for your answer.  It has caused me to think about it in a slightly different way.