You are correct.Kenkat wrote: ↑Thu Apr 22, 2021 4:19 pmIf you are saying that someone is 100% equities but that statement can mean totally different things depending on situation (as it’s not apples to apples), then I would agree with you. So the negative bond makes the home owner 100% equities. So what? This doesn’t really accurately quantify their risk. The house is a de-risking asset - to properly assess risk, you have to include it. You reference this above (I underlined it).alex_686 wrote: ↑Thu Apr 22, 2021 3:32 pm First, you want to compare apples to apples, and the example you are giving are not apples to apples. I, on purpose, simplified the model to just equity/bonds. And it works just fine if you assume everybody has the same size house off of the balance sheet. However, you want to include a renter verse a home owner. To do this right you would need to add in the home value. Some would treat this as bonds but it is probably better to treat it as its own asset class.
Second, ok, they do have different risk profiles. Let us assume that they are living in comparable homes. The renter has more productive and liquid assets. The renter probably has higher expenses. But they have the flexibility of downsizing. Person living in the house may have higher mandatory expenses deepening if they have a mortgage. But so what?
So if you check upthread you will see me repeatedly saying I am taking the house out of the model of simplify things. That may be a mistake. I have seen formal training books for advisors saying to get the information, file it, and never reference it again. That is, very important but not worth the extra complexity. Which, yes, is a contradiction - but so are many things in life.
If we put it on the balance sheet what do we put it on as? As I also mentioned way upthread, this is a complex and nuanced question which has stumped plenty of people.
Probably as a diversifying asset with a expected real return of zero. This is the historic long term after inflation return. And you consume all of the imputed rent.