patrick.net

Patrick says

Most people have most of their money in their house - but most rich people have most of their money in stocks and bonds.

The rich (i.e., top 3 to5%) are likely worth at least $10 million or more and live in a house valued maybe around $2 million. Perhaps they own it outright with no mortgage. So the remainder $8 million would be in mutual funds, hedge funds, etc.

Someone worth $1.5 million living in California and is within the 80 to 90% likely has most of their "equity" or "savings" in their house, and with the remainder in the 401k, or perhaps CALPERS (i.e., Marcus types, etc.).

AD says

Someone worth $1.5 million living in California and is within the 80 to 90% likely has most of their "equity" or "savings" in their house, and with the remainder in the 401k, or perhaps CALPERS (i.e., Marcus types, etc.).

I am approximately worth $1.7 million with most of my wealth tied up in the house ($2 million shack in bay area) and I have around 300K to go before mortgage is paid off. Unfortunately I don't have any other assets (no 401K, no mutual fund, stocks, bonds, etc) except a $50K emergency fund and anything else that comes my way besides that goes into paying off the mortgage.

But now that have an inverted yeild curve, a ression is on the way soon and I am going to recast my mortgage to a lower payment, stop paying down mortgage, and start increasing my emergency fund to $80K instead before the recession hits and I get laid off again.

No matter where your wealth is, consider adding a probability factor to your assessment. I hope RE keeps going up and up, but what is the probability that a $1million house will be worth $1 million next year or the following year? If in Seattle, that probability is less than 100%, it seems, so if it is 70%, your wealth is $700,000. Diversifying amongst asset classes is one way to hedge risk, assuming that the movement of all asset classes are not positively correlated. If that diversification includes cash, and RE and equities crash, relatively speaking, your cash has gone up in value.

alpo says

$1.7 million with most of my wealth tied up in the house ($2 million shack in bay area) and I have around 300K to go before m

Okay, so essentially 100% of your wealth is tied to equity in your $2 million dollar bungalow in the San Fran Bay Area.

Why not just sell it now and pocket $1.5 million? Take the $300,000 to buy a nice home in Nevada or Arizona and then live off 6% a year of the remainder $1.3 million ?

alpo says

But now that have an inverted yeild curve, a ression is on the way soon and I am going to recast my mortgage to a lower payment, stop paying down mortgage, and start increasing my emergency fund to $80K instead before the recession hits and I get laid off again.

If you want to play w fire a bit, you could wait until vix pops to 28 then buy puts in banks, homebuilders, and REITs. This would expensive insurance though.

Otherwise just expect your paper wealth to fall by 50% for a year or two and ride it out

AD says

Why not just sell it now and pocket $1.5 million? Take the $300,000 to buy a nice home in Nevada or Arizona and then live off 6% a year of the remainder $1.3 million ?

Not a bad plan at all

AD says

alpo says

$1.7 million with most of my wealth tied up in the house ($2 million shack in bay area) and I have around 300K to go before m

Okay, so essentially 100% of your wealth is tied to equity in your $2 million dollar bungalow in the San Fran Bay Area.

Why not just sell it now and pocket $1.5 million? Take the $300,000 to buy a nice home in Nevada or Arizona and then live off 6% a year of the remainder $1.3 million ?

Don't forget about the taxes from the sale. Even if you buy the NV/AZ house inside the same year, i suspect gains on the sale of a $2M property would outstrip the offset from the cost of the new home.

CBOEtrader says

If you want to play w fire a bit, you could wait until vix pops to 28 then buy puts in banks, homebuilders, and REITs. This would expensive insurance though.

Otherwise just expect your paper wealth to fall by 50% for a year or two and ride it out

Right now VIX is $16.48 ( https://finance.yahoo.com/quote/%5EVIX/ )

So you are saying when VIX peaks which you forecast is going to be around $28, then to buy puts in shares of stocks who are inversely correlated to the VIX ? Do you recommend a covered put ? Buy say 1000 shares in Toll Brothers and then buy covered puts for Toll Brothers when VIX hits $28 ?

Right now though the 30 year mortgage rate is staying at 4.3% (though it peaked to 5% last November). That may be keeping the home builders afloat now.

AD says

live off 6% a year of the remainder $1.3 million

Where is a guaranteed 6% to be found? Just curious.

cmdrdataleak says

Don't forget about the taxes from the sale. Even if you buy the NV/AZ house inside the same year, i suspect gains on the sale of a $2M property would outstrip the offset from the cost of the new home.

If "alpo" is single then he gets a $250,000 exemption (or if married then a $500,000 exemption) from capital gain sale of home.

I don't know how much capital gain that "alpo" would have on the $2 million dollar house. His remaining mortgage is $300,000, so assuming a maximum $1.7 million gain, and deducting then the capital gain is $1,450,000. I figure a 30% hair cut (or tax plus the real estate sales transaction fees) on that, and that is $1,015,000. Add the $250,000 exemption, and that is $1,265,000.

Subtract $300,000 for the new home in Nevada from that $1,265,000 and that leaves $965,000. 6% annually on $965,000 is $57,000, which is well above the median household income in Nevada.

willywonka says

Where is a guaranteed 6% to be found? Just curious.

Good question. You are correct in what you are asking, as nothing is guaranteed at that high of a rate. I suspect the only "guaranteed" annuity would offer a maximum of 3.5% annually.

I would say put all the $965,000 in Vanguard Lifestrategy Conservative Growth Fund (40% stocks, 60% investment grade bonds). Leave it alone. There may be a year or two where the fund returns -15%, but stay the course. If need be, work a part time job to supplement income from the Vanguard fund.

AD says

willywonka says

Where is a guaranteed 6% to be found? Just curious.

Good question. You are correct in what you are asking, as nothing is guaranteed at that high of a rate. I suspect the only "guaranteed" annuity would offer a maximum of 3.5% annually.

I would say put all the $965,000 in Vanguard Lifestrategy Conservative Growth Fund (40% stocks, 60% investment grade bonds). Leave it alone. There may be a year or two where the fund returns -15%, but stay the course. If need be, work a part time job to supplement income from the Vanguard fund.

Wait, now we're working part time at the DQ in Mordor... er... Nevada? This retirement is sounding less appealing all the time.

cmdrdataleak says

Wait, now we're working part time at the DQ in Mordor... er... Nevada? This retirement is sounding less appealing all the time.

In my "Bill Clinton, I'm just a simple country-lawyer accent", I say : "That depends on what your definition of appealing is.".

Then don't work at all. Automatically withdraw 6% a year from the $965,000. They'll be an up year (i.e., drop of -15%) followed by up years (i.e., increase of 10%).

Still you'll live real well in Pharump or Sparks, Nevada.