Quote:
Originally Posted by noppenbd
I hold that any one asset that grows to be a large fraction of your net worth is not diversified.
|
Thank you for stating my fuzzy thoughts so clearly!
And thanks to all of you for the thoughtful replies.
Some additional thoughts:
- I understand that we cannot dictate the appreciation or depreciation of our home's value, but that does not mean we can't make intelligent assumptions. We do it all the time when we do retirement calculators: Investment return, rate of inflation, life expectancy. None of us can possibly know any of those figures for certain, but we assign numbers based on reason anyway. Historically, home values have kept pace with inflation. Assuming you are buying at a price that reflects the historical trend (and not at the top of a bubble), the figure you use for expected inflation and the figure you use for the expected appreciation of your home could be the same (for example 3%), couldn't it?
- Monkey Mama is correct that I am thinking a lot about this right now because I am trying to decide how much to spend on a house. I think this is a good time to think about it. But I also think it is something people might want to monitor, especially as they approach middle age ... (see next thought)
- Regarding downsizing: I think if more people monitored their home equity as a percentage of their net worth, especially as they start to get "older" (and I'm in my mid-40's and include myself in that category so I hope no one takes offense at the use of that word), it might prompt more people to downsize earlier on. For example, if someone is 55 and realizes their home equity is too large a fraction of their net worth, and they go ahead and put their home up for sale, they are in an infinitely better position than someone who comes to the same realization at 65 and who is forced to have a "fire sale" on their home.
Well ... I've heard percentages of 10-20% and they sound reasonable to me. If anyone else thinks this calculation is (or even possibly could be) important and cares to throw out a number, that would be great!