Author Topic: What is my asset allocation, actually?  (Read 1463 times)


  • Stubble
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What is my asset allocation, actually?
« on: June 12, 2018, 10:23:15 AM »
It's important to know your asset allocation for various purposes.  The trouble is, I'm not sure what counts.  If the point of having a particular asset allocation is to dampen volatility and increase diversification, then lots of asset classes *should* count beyond merely investable assets.

An example of how this can  make a huge difference:  I have assets (and "assets") in several categories.  Specifically,

my equities
my bonds and cash
my paid-off home
my SS (eventually)

So my asset allocation is either:

80/20  (considering only the "investable assets")
70/30 (considering investable assets plus a pretty conservative lump-sum estimate of social security)
66/24  (considering investiable assets plus home equity)
60/40 (considering all four asset classes)

I know that Bogle has said that social security should count as a "bond" for these purposes.  Plenty of people on this site point out, when someone claims they are "100% equities," that if they have a paid off home they are not, in fact, 100% equities.

I understand that one cannot rebalance ones home or social security.  But presuming that one has enough bonds (and equities) that rebalancing across the entire portfolio is still possible, isn't the "correct" answer to what my asset allocation is,  60/40? 


  • Stubble
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Re: What is my asset allocation, actually?
« Reply #1 on: June 12, 2018, 10:58:41 AM »
And for what it's worth, Kitces seems to heartily endorse treating SS as a bond-like asset for purposes of risk allocation (from an academic perspective, though he hedges from a "practical" perspective).  I don't always agree 100% with Kitces, but I always take him very seriously.
« Last Edit: June 12, 2018, 11:03:17 AM by Roothy »


  • Bristles
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Re: What is my asset allocation, actually?
« Reply #2 on: June 12, 2018, 01:14:53 PM »
It's up to you what you want to include.

Personally, I consider my house as part of my net worth, but not as part of my investable assets or asset allocation. I certainly could, but then I would want to figure out my imputed rent and add that to my expenses, which I don't think is worth the effort.

I also don't count social security because I won't be able to start collecting it for over 20 years after I retire, so it doesn't make much difference. If I was within 10 years of collecting SS I would count some portion of the expected benefits (maybe 70 or 85%) in case something happens that reduces benefits.


  • Handlebar Stache
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Re: What is my asset allocation, actually?
« Reply #3 on: June 12, 2018, 02:03:36 PM »
I'm 60/40 in terms of investible assets.  I have a paid off home worth about 115k.  As the portfolio grows, the home component becomes increasingly trivial.  I'm not counting on SS.  My benefit at earliest available grant date is currently estimated by the service at 641/mo.  That will buy a lot of bangers and mash but isn't life changing so I don't think of it except as gravy.

Oh yeah,  I forgot about the defined benefit pension from Baker Hughes.  It will be worth about 22k when it matures.  Not 22k/year.  22k lump sum.  Easy to ignore.


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Re: What is my asset allocation, actually?
« Reply #4 on: June 12, 2018, 03:38:05 PM »

I count my stash and base my SWR on actual expenses, which does include taxes, property tax, utilities, etc.  The fact I own home at this time only affects the expense side, not the stash side  /  AA in anyway.  If I had an apartment, I would still maintain the same AA.

I would NOT count SS as a bond even if I was collecting today.  For the future when I'll get SS in 16 years, I take my total expected expenses, subtract the promised monthly SS benefit, and what remains is what my stash SWR needs to cover based on an AA that is totally independent of SS.