Every once in a while I review my overall asset allocation to see if/where I need to make changes.
I thought sharing it with you might prove interesting as well.
So here’s a list of my assets (by class) and what percentage each makes up of my total assets (in descending order):
- Retirement Brokerage Accounts – 42.9%
- Rental Properties – 17.7%
- Brokerage Account – 17.3%
- Personal Residence – 11.3%
- P2P Lending – 4.7%
- Checking Accounts, Savings Accounts, and Cash – 3.4%
- HSA – 0.9%
- Real Estate Partnership – 0.9%
- Cars – 0.8%
FYI, I have excluded the college savings accounts for my kids as those have been allocated for their expenses.
A few thoughts on these:
- You can see why I have had issues managing early retirement — so much of my net worth is tied up in assets I can’t easily get to until I reach 59 1/2.
- My rental properties make up only 17.7% of my net worth but will provide somewhere around 65% of my retirement income. Darn! I wish I had bought more!!!!
- One potential source of extra funds during retirement could be to sell my primary residence. I figure I could rent reasonably for about 20 years with that money if I had a hankering to move. But I already live in Colorado — a place people move to (or at least visit) when they retire. 馃檪
- The real estate partnership is a thorn in my side. I got into it with friends several years ago. We bought one piece of land that was a “sure thing.” We haven’t been able to sell it at a reasonable price and yet I keep getting “cash calls” on it. Ugh. [Update: We got out of it, but it turned out to be a massive mistake.]
That’s it. Not too interesting, but we’re not going for excitement here. We’re going for wealth. 馃檪
I’d rather have wealth than excitement any day! I’m in a similar situation but even worse. Probably 62% or so of our portfolio is tied up in retirement funds with no easy way to get to them before then.
We do not have any rental properties or significant side-businesses, so generating cash flow is an issue if I try to get out early. I’ll be trying to address this somehow over the next few years with real estate, a bigger side business or a dividend portfolio.
The one way to get your retirement funds which I almost pulled the trigger on a few years ago is to put them into a self-directed IRA and then you can use the funds to buy a business. You can then run the business and get a salary plus the profits. It’s a little complicated to do it properly though.
Thanks for sharing!
Sounds like you’re going for wealth so that you can have freedom – and freedom is pretty exciting : )
I’m interested in what you have to say about rental properties – 65% of your retirement income. Wow!
Check out my “real estate” category. Lots of stuff there.
Similar situation in that majority of my assets are in retirement plans. This year I will be 54 and I know that there is an IRS rule called 72t where I can take funds out of these plans without penalty at 55.
Not that I am looking to stop work any time soon as I would like to work until 59 1/2 but I look at 72t as my E or F plan after exhausting A, B, C, D plans. The past 8 years
Most of what I have read is how to do it and with all caution about running out of money. I would be interested in your opinion on 72t and why or why not you would take it and what you can and can do when you start 72t.
I don’t know what happened to my one sentence but to complete it is
the past 8 years has proven to me that things can change and change drastically for the bad. So having multiple plans are necessary.
I know about rule 72 and consider it my backup plan if need be.
After doing a retirement budget (which I’ve been working on for some time now) it appears I don’t need the retirement funds at the moment to fund early retirement.
Stay tuned as I have some news to share next week along those lines. 馃槈
Are you maxing out your HSA? I have found HSA to be an awesome way to build a supplemental retirement account and the best part is you can take money out anytime using any current or past medical expenses. It’s a Never-Pay-Tax account. I recently wrote about it on my blog.
At the moment I am, but that’s soon to change.
Why?
Stay tuned…big news next week.
I did not expect primary residence and cars to be part of assets – I thought they are sunk costs.
In terms af asset breakup, do the retirement and regular brokerage accounts represent equity only?
Different people count assets (and thus net worth) differently.
I include ALL assets in my calculations because they all have value. If I wanted, I could sell my residence and rent out a much cheaper place (or even move into one of my own rental units). So in my mind it’s a clear asset. Others handle it differently.
Cars are assets for the same reason — I could go out and sell them now for cash. I buy new (as most of you know) and keep cars for a long time. I usually depreciate them in Quicken over three years so at the end of that time they have “zero” value. It’s a way to give myself a bit of a cushion and has worked out well those times we’ve had an accident and had to replace cars.
The retirement and brokerage accounts are invested in three Vanguard index funds — total US, bond index, and international stock index.
this means you have 40% (2/3 of 60%) in stock, which looks pretty healthy – cheers!
thanks for the clarification on primary home/cars. since i had seen most of the net worth stats/reports typically excluding them, i though that was the norm…
Of course a primary residence and cars are assets. They may not be investment assets upon which you can expect a return but they are assets with value that can be sold. There is no other way to view them that doesn’t open the door to all kinds of accounting goofiness.
As a way to see this consider what happens on the edge day of some pretty big decisions around houses and cars. Say someone with a networth of 200K buys a 100K Porsche. Does his net worth all of a sudden drop in half down to 100K on that day. When he comes home his wife says he has lost his mind and the next day she sends him back to the dealer to sell the car back. He sells it back for 95K and goes and buys a Toyota Corolla for 25K. So now his net worth jumps back up to 170K on the next day? That seems pretty ridiculous doesn’t it?
With a house if you don’t count the asset do you count the mortgage as a liability? So someone with a 200K net worth who buys a 300K house with a 250K mortgage now has a negative 50K net worth? That can’t be right. Perhaps you say well you don’t count the asset or the liability. OK so then someone with a 500K house fully paid for goes out and gets a 400K HELOC on the house and takes the entire HELOC out to invest in stocks. Did his net worth just increase by 400K? That seems even more ridiculous does it not?
Not counting houses and cars as assets creates all kinds of accounting anomalies that are pretty goofy. Houses and cars are assets. Just not ones that are very productive for you from an investment standpoint. Try telling your heirs that houses and cars are not assets so you just plan to donate them to charity. I don’t think they will agree.
HA! Classic response!
I appreciate it!
my thought was(is) that if ‘need’ the house (which might be true for primary residence for many), then it is not an asset, and mortgage if any should be a liability. of course if the house is something you can downscale from without much impact, then part of it does look like some investment that you can encash as needed. the same would apply for car example you mentioned.
net worth jumping up or down is not really a big issue – winning lottery, bonuses, receiving inheritance, maturing stock options, etc. could be contributors of that…
As a CPA it always infuriates me (anal people get worked up over really dumb stuff) that anyone would ever exclude assets from a balance sheet. In my eyes if one excludes they are basically assigning a zero value to it.
Great response.
Hey ESI,
I’d love to see an article on your investment allocation between fund types and how that has changed from when you were younger until now.
I’ll put that on my list, though it may be some time before I get to posting on it.
Too many ideas and too little time! 馃檪
Hey ESI,
Great article! It’s nice to see what others are doing with their investment strategies.
I’m now 30 years old and have been growing my investment portfolio for a few years now. While looking over your allocation breakdown I noticed that you don’t have any investment in Bitcoin. I’m sure you have heard of it and have been skeptical, but I would suggest a small holding either way. I first invested a few months ago and follow it closely (Not to mention gains of 30+% in that time). Over the long term I only see positive gains for this investment and it is gaining traction worldwide at a faster pace now more than ever.
Check it out and let me know your thoughts.