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Question about REITs and Asset Allocation

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  • Question about REITs and Asset Allocation

    I have a question about real estate asset allocation.
    I am 5 years out of training. We paid our house off last year (currently valued at around $500k in this crazy housing market).
    My asset allocation calls for 10% real estate and historically I have not included our home's value in that 10%- we currently have 10% of our assets invested in REIT's.

    In your opinion, should we include our home's value in our asset allocation (if we go this direction, we would sell the REIT's and rebalance)
    Or, should we keep doing what we have always done (not include our home's value in our asset allocation).

    Thanks in advance!

  • #2
    i dont


    • #3
      I don’t count home value in my AA, but many will say you should count it in net worth. I don’t spend much time focused on net worth, but do try to keep my liquid investments in a set AA.


      • #4
        I dont , when i do a once a year networth it is nice to add up the numbers. But in general it does not affect they way I look at other assets or classes. I figure I have to live somewhere and it really doesn't matter if the value goes up because I dont intend on moving anyway.


        • #5
          I don't include it either


          • #6
            We don't either because you'll always need a place to live so it's not really an "investment" to rebalance around. The only way we'd incorporate a house into our planning is if you're planning to downsize in the future or move in general and will use some of the equity to invest elsewhere.

            One other thing about REITs exposure, as it pertains to asset allocation/placement, whenever possible we try to hold this in a tax-deferred or Roth account because of the larger distributions they kick off each year.
            Andrew Musbach, CFP® | Co-Founder & Financial Advisor at MD Wealth Management, LLC | Podcast Host - The Physician's Guide to Financial Wellness


            • #7
              This will sound weird but I actually am combining the amount that I've paid down on the home mortgage (and home equity) into the bond asset allocation of my portfolio. The reason for this is that home equity and bonds accomplish similar things for my portfolio = risk reduction and stability at the expense of a lower rate of return compared to the stock market.

              Granted, paying down a mortgage reduces debt, while bonds give an investment return but those are two sides of the same coin in my mind. So if I want to pay down my home faster, I'll reduce the amount of bonds that I buy that year by a similar amount.

              I've never heard of anyone else doing this so please feel free to let me know why this reasoning is flawed.


              • #8
                No. Physical RE should be another category vs equity RE.


                • #9
                  I understand why people try to rationalize paying down debt as a negative bond, but it serves no real purpose other than pretending you have more money and stability in your financial situation than you would otherwise with out this as a calculation.

                  If you stock portfolio goes down , are you going to sell part of your house to re allocate?