Asset Allocation Question

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Prudence
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Asset Allocation Question

Post by Prudence »

Wife and I moved into a continuing care retirement community last year. We are age 70 and 75 now. We paid a large refundable fee which is 90% refundable when we "exit the community" (die or move out). So, far the fee is not included in our asset allocation or portfolio investing decisions. I am wondering if this is too conservative. The refundable fee will obviously be subject to or eroded by inflation, like any other stock or bond. The fee is like cash or a bond earning zero interest. Would it make sense to include the fee as an asset (the denominator) inside the fixed portion of our investment portfolio?
rkhusky
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Re: Asset Allocation Question

Post by rkhusky »

Prudence wrote: Tue May 17, 2022 6:38 am Would it make sense to include the fee as an asset (the denominator) inside the fixed portion of our investment portfolio?
No, because you can't/don't buy or sell it when you need to rebalance your portfolio. It's like many other assets you may have - house, cars, jewelry, artwork, life insurance, etc.
Dandy
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Re: Asset Allocation Question

Post by Dandy »

I guess you should think of it like equity in a house. It will be consumable/investable at the time you actually receive it.
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retired@50
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Re: Asset Allocation Question

Post by retired@50 »

Prudence wrote: Tue May 17, 2022 6:38 am ... We paid a large refundable fee which is 90% refundable when we "exit the community" (die or move out).
The statement above says two things to me.
1. You and your spouse may never see this money again if you don't move. So, don't count it in your asset allocation decisions.

2. Tell your heirs and/or executor about this arrangement now, while the pertinent details are fresh.
Write something down, don't rely on your own memory.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
pasadena
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Re: Asset Allocation Question

Post by pasadena »

retired@50 wrote: Tue May 17, 2022 8:53 am
Prudence wrote: Tue May 17, 2022 6:38 am ... We paid a large refundable fee which is 90% refundable when we "exit the community" (die or move out).
The statement above says two things to me.
1. You and your spouse may never see this money again if you don't move. So, don't count it in your asset allocation decisions.

2. Tell your heirs and/or executor about this arrangement now, while the pertinent details are fresh.
Write something down, don't rely on your own memory.

Regards,
+1.

However, you may want to take it into account for long-term care, if you think this makes sense. Maybe one day, you will move out and need LTC - in this case the fee may help. But then again, you can't really plan for it, and your family needs to know about it (and how to get it back).

Otherwise, I agree with the poster above who said this is akin to equity in your home. Totally unavailable until you sell. It may be part of your net worth, but not your portfolio.
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Candor
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Re: Asset Allocation Question

Post by Candor »

Net worth yes, AA no.
The fool, with all his other faults, has this also - he is always getting ready to live. - Seneca Epistles < c. 65AD
Harmanic
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Re: Asset Allocation Question

Post by Harmanic »

rkhusky wrote: Tue May 17, 2022 6:44 am
Prudence wrote: Tue May 17, 2022 6:38 am Would it make sense to include the fee as an asset (the denominator) inside the fixed portion of our investment portfolio?
No, because you can't/don't buy or sell it when you need to rebalance your portfolio. It's like many other assets you may have - house, cars, jewelry, artwork, life insurance, etc.
That depends. Would it be wrong to buy REITs instead of a house, or cut back on them if your house value appreciates? I have real estate in my long term investment plan and include my house as part of the asset allocation. The other things like cars and jewelry are not worth enough to make much difference.
I am not saying my way is the right way. But I think it is legitimate.
The question isn't at what age I want to retire, it's at what income. | - George Foreman
rkhusky
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Re: Asset Allocation Question

Post by rkhusky »

Harmanic wrote: Tue May 17, 2022 1:35 pm
rkhusky wrote: Tue May 17, 2022 6:44 am
Prudence wrote: Tue May 17, 2022 6:38 am Would it make sense to include the fee as an asset (the denominator) inside the fixed portion of our investment portfolio?
No, because you can't/don't buy or sell it when you need to rebalance your portfolio. It's like many other assets you may have - house, cars, jewelry, artwork, life insurance, etc.
That depends. Would it be wrong to buy REITs instead of a house, or cut back on them if your house value appreciates? I have real estate in my long term investment plan and include my house as part of the asset allocation. The other things like cars and jewelry are not worth enough to make much difference.
I am not saying my way is the right way. But I think it is legitimate.
Depends on what type of cars and jewelry that you have.

Is your home equity a stock or a bond?

How do you determine your risk level? All the normal tools use real stocks, bonds and cash to give an idea of the risk through the years. I don't know of any tools that include home equity in a historical risk analysis.
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