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Do you count your residence as part of your asset allocation?

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MrMoneySaver:
I'm trying to figure out the right asset allocation for my retirement funds, and my wife's as well. Right now we are somewhere around 85 percent stocks (domestic and international index funds, mostly) and the rest is bonds. I'm struggling with how much to hold in bonds. We're both 41 years old.

However, about half out net worth is tied up in home equity. (I'm not saying this is a good thing.)

Should I think of the retirement funds independently, or should I think of it all as one portfolio, with the house being similar to cash/bonds? If the former, I was thinking of doing an 80/20 mix of stocks/bonds. If the latter, I probably wouldn't want to hold much in bonds at all.

jgoody:
For me personally, I tend to think of my house as "other" and not part of net worth/asset allocation. 
I happen to live in the Cascadia Subduction zone, so one reason I wouldn't liken my home equity to a bond is that my perceived risk is much higher than a bond holding.  It's also one of the reasons I don't count it towards net worth.  Anyway, that's the way I look at it.

keyvaluepair:
You have to live somewhere & unless you plan to move to a lower cost area (or rent the house), it doesn't count.

Tyson:

--- Quote from: keyvaluepair on October 05, 2017, 01:41:18 PM ---You have to live somewhere & unless you plan to move to a lower cost area (or rent the house), it doesn't count.

--- End quote ---

Right on.  For FIRE, home equity doesn't count. 

Re: the ratio - I'm staying closer to 90/10 during accumulation phase, and as I get closer to retirement I'll shift enough toward bonds to cover 3 years of living expenses.  That way if there's a crash, I can weather it without too much difficulty.  And I plan to have my house paid off before FIRE.  Once I'm done with work, I don't want a mortgage hanging over my head....

GuitarStv:

--- Quote from: tyort1 on October 05, 2017, 01:49:34 PM ---
--- Quote from: keyvaluepair on October 05, 2017, 01:41:18 PM ---You have to live somewhere & unless you plan to move to a lower cost area (or rent the house), it doesn't count.

--- End quote ---

Right on.  For FIRE, home equity doesn't count. 

--- End quote ---

As was previously mentioned, if you're planning on selling your home and moving to a place with much lower cost of living I think that home equity (minus the average cost of a house in the area you're planning to move to) should probably be counted towards your savings.

Ex:
Dude owns a one million dollar home in the expensive city where his job is.  He has 500 grand invested in stocks.  Upon retirement he's planning to move to an area where the average price of a similar home is 500 grand.  This guy can figure that he has about a million dollars saved for use in retirement.  It would be silly to ignore that.

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