Does your "gambling" account factor into your allocation?

[koralcem]

I read in a lot of places that if you're going to indulge in picking individual stock, you at least be honest with yourself, call it "gambling", and do it with only a small percentage of your money. This all makes sense and I have a question for the folks who do it: Do you treat that amount as part of your stock allocation among the rest of your portfolio? Or is it completely separate from everything else?

For instance say you had $100, wanting to maintain a 50/50 stock/bond split, and want to pick individual stocks with $10 (numbers intentionally absurd for ease of calculation). Is your portfolio...

• $10 in individual stocks, $45 in a bond fund, $45 in a stock fund (i.e. everything but your gambling money follows your allocation), or...
• $10 in individual stocks, $50 in a bond fund, $40 in a stock fund (i.e. you're gambling with stocks, so they count as part of your 50% stock allocation)

[YoungInvestor]

You'd generally consider it as a part of its own in your AA:

E.g.:
20% bonds
10% REITs
10% Play money/gambling
40% us stocks (index fund)
20% international stocks (index fund)


And rebalance accordingly on your usual timeframe.

[Apocalyptica602]

I keep mine separate and don't factor it into my net worth or allocation.

There's a few reasons for this. One is I've compartmentalized it emotionally as already 'lost'. So I don't bad if my gambles fail horribly. If they do well, I'll transfer some of that money out into our 'real investments' which get counted in our net worth. Second, is that the fraction of money reserved for gambling like this is  ~.25% of our net worth, so it's almost immaterial.

My risky gambling allocation is primarily crypto-currencies. I also pull this from the same pool of money I use for ACTUAL gambling, (i.e. craps and blackjack).