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Contributed by mm | August 20, 2005 4:16 PM PST
This makes total sense. Home equity should be included in all net worth calculation and investment decisions.
From MSN Money:
For most people, home equity is a large part of total wealth. Yet asset allocation plans -- which try to formulate the ideal mix of stocks, bonds, and other investments -- often fail to take this asset into account. Dean Gatzlaff, a professor of business administration at Florida State University's College of Business in Tallahassee, has developed a method to do just that. Associate Editor Anne Tergesen spoke with Gatzlaff by phone.
Why include home equity in an asset allocation plan?
Investors should attempt to maximize their overall net worths -- not simply the value of their financial portfolios. To do this, you need to consider the value of all your assets. In theory, this would include your cars, artwork, jewelry, collectibles, and more. More practically, this means treating home equity as another asset that diversifies a portfolio. Including home equity in an asset allocation mix modifies the optimal allocation to stocks and bonds.
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