July 6, 2003

Planning Includes Counting All You Have
By Marcel Chartier

Do you count your house as a part of your overall investment portfolio? How about your pension plan? What does your portfolio look like if you do? Let's look at an example:

Sherry and Bob are married with 2 children. Together they have $35,000 in a mix of equity mutual funds and $18,000 in conservative money market funds.

Based on this information, Sherry and Bob have $53,000 in investments, 66% in equity and 34% in money market funds. This mix would suggest this a somewhat aggressive portfolio mix, as it is more heavily weighted to equities than non-equities.

Bob has a company pension plan, which is now worth $32,000. The pension fund is about 60% money market ($19,200), and the remaining are conservative dividend stocks - less that 10 percent can be considered growth oriented companies ($12,800) .

Sherry is participating in a modest retirement matching program at work which is administered by a financial company, and she has checked off a balanced fund for her contributions to go into. Her total is now about $2,000, half are in bonds ($1,000), half are in equities ($1,000) as this is a balanced fund.

They have a house, worth $210,000, with $172, 000 still left on the principle, net equity is $38,000. After adding all the equity and the investment amounts, Sherry and Bob have $125,000 invested, but what is the real mix?

Well here it is:

Real estate - 30%

Bonds - 31%

Equities - 39%

You can see where I am going with this, the original conclusion that Sherry and Bob's investment mix was somewhat aggressive is not true. Only 39% of their investments are in equities and much of those are in conservative pension holdings. If this couple wanted to increase the aggressiveness of their holdings, much of the new money they invest should probably go to equities, and a good portion to growth oriented stocks. Significant dollars need to be applied to gain that ratio, and, the greater the home equity and pension plan growth the more conservative Sherry and Bob's "investment portfolio" will become.

Paying attention to what your mix of "investments" is over time really will help you in deciding how much risk you may want to take on. You may be more conservative than you think, and much more conservative than you want.