Where is Your Wealth?

Here's a piece from CNN that details where Americans keep their wealth (what there is of it -- the median net worth is $69k). The summary:

The composition of that wealth has changed over time. Back when Ronald Reagan was president, home equity made up nearly half of young adults' net worth, while interest-earning accounts, like those at a bank, accounted for a quarter of senior citizens' wealth.
 
Those figures are very different today, with retirement account assets playing a larger role in the portfolio of Americans of all ages. This comes as folks become ever more dependent on 401(k) accounts -- which companies started offering in the early 1980s -- to see them through their Golden Years as traditional pensions dwindle.

Here's how my net worth breaks down:

• Retirement investments (401k and IRAs): 41%
• Real Estate: 22%
• Non-retirement investments: 20%
• Cash and cash equivalents: 15%
• College savings: 7%
• Debt: -6%

And a few notes:

• Retirement investments - Includes my current 401k plus other 401ks that my wife and I have rolled over to IRAs.
• Real Estate - Includes value of our home as well as investment properties.
• Non-retirement accounts -- Our investment accounts at Vanguard, much of which has funded my real estate investing.
• Cash and cash equivalents - Includes amounts in checking accounts, savings accounts, and CDs (emergency fund money) as well as cash on the sidelines in preparation for future real estate purchases.
• College savings -- 529s and Coverdell accounts.
• Debt - I don't have any official debt. I paid off my mortgage 15 years ago and pay cash for my cars. But I have created a liability line in Quicken (where I track my net worth) for future obligations I know are coming: college expenses for the kids, tax payments, and giving (yes, I purposefully create a "liability" for giving commitments I have made in advance.)

So I guess I fit the mold of having more money in retirement accounts and less in real estate (compared to past years). That said, I see the real estate portion growing a bit more -- maybe to 30% or so.

What's your net worth breakdown look like?

Comments

[Jenny @ Frugal Guru Guide]

It's pretty much in 401(k)s, given that the housing crash wiped out our equity.

[Jenny @ Frugal Guru Guide]

Oh, I guess it's in college savings for the kids, too!

[Luis]

70% in real estate.

[Money Beagle]

I do my calculations a little differently, where the debt is applied against the asset (student loan debt is applied against cash and investments). Ours basically equates: Real Estate - 10% (three years ago it was -10% so this is moving well in the right direction), Autos - 10%, Cash & Investments - 20%, Retirement - 60%. So, yes, retirement is a huge chunk.

[getagrip]

I'm about 2/3 of my networth in 401K type accounts and 1/3 equity from my home. I guess if I considered college savings as part of my net worth, that'd bring the other two values down and be about 10% for college savings at their peak (since I'm spending it now).

[John S @ Frugal Rules]

We're pretty much in IRA's, Real Estate and cash.

[Jane]

79% in retirement account, so we are very heavily skewed to retirement savings - which seems appropriate as we are within five years of retirement.
I do think the change from home equity to retirement assets is a healthy change. Too many people I've known in the past thought too highly of their home equity as an asset they could count toward retirement, without taking into consideration that in order to tap that asset they'd have to sell and move or take out a mortgage.

[elb]

10% cash, 30% retirement pre-tax, 60% real estate. Real estate is about 50% leveraged, so it will outpace the other two substantially going forward.

[Mc]

About 20% of my net worth is in my house equity, 10% in 529 college savings for my high school age kids in tia-cref, 30% in ira/401k in mutual funds, 20% in my life insurance side fund - guaranteed investment option, and 20% in taxable mutual funds. I think this is overall too conservative however so I'm focusing on adding to mainly the taxable mutual funds the next couple years. I do have a large mortgage on my home that I bought last year, but I'm comfortable with not paying it down for now since the rate is so low and my $ earn much more elsewhere.

[JimL]

Retirement 45%
Real Estate 37%
Investments 13%
Cash 5%

Based on projections, the first three categories will converge over time, with the investment portion growing the fastest, as we have no mortgage debt, will be past college expenses and have larger LTI payments coming. We bought a very large home during the real estate crash (taking advantage of the market conditions) and may sell this off in the next couple years when we downsize. I have been tempted to do this now as the market in our area is really hot and homes in our area sell within days. The problem is that I have not seen anything I like as a replacement home.

[JayB]

Real Estate Equity 38%
Debt 39%
Cash 12%
Retirement 11%

The debt is being paid off fairly fast which I project to be within 6 years. After that, The excess money will go into retirement and possibly real estate ventures.

[Jonathan]

I don't think these numbers mean much without context, but here's our breakdown:

120% Real Estate
8% Cash
8% Roth IRAs
7% Mutual Funds
-43% Debt (nearly all on rental real estate)

Some may view the heavy dependence on real estate as a balance problem, but we do not. For one reason, the properties we are invested in all cash flow, so their underlying value is fairly meaningless except in the event of a sale. For another, we are young and growing our net worth rapidly. Even if for some reason real estate made a permanent drop and half our net worth evaporated and rents fell, it wouldn't be a devastating blow.

[JTS]

My breakdown is probably unusual, primarily because of two factors:
1. I recently sold two relatively expensive cars. So my cash percentage is high as a result since I have not yet invested the full amount.
2. I did not previously fully grasp the benefits of retirement accounts, even as my income increased. I have recently seen the error of my ways.

Taxable inv: 48.2%
Real estate: 27.2%
Cash and savings: 22.2%
Retirement: 2.4%

-Jon

[Jake]

I am about 30 Retirement Accounts/50 Real Estate/20 Cash/Debt/Equities.

An interesting way to look at this would be the tax classification of each of these asset groups. You hear this referred to as "tax buckets." Most classify them as taxable, tax-deferred and tax-free.

Taxable assets are those that you pay tax on the income annually - think savings accounts, CDs, brokerage accounts and even things like real estate partnerships (but not the underlying real estate itself).

Tax-deferred assets are those that you will pay tax on the gain at some future date. These include traditional IRAs, retirement accounts like 401ks and annuities. I would also include real estate in this bucket - you don't pay taxes on the growth of the real estate annually but you will when you sell it down the road. One note on real estate is that we are excepting personal residences and 1031 exchanges.

The third bucket is for tax free assets (think Roth IRAs). These are assets that you never pay tax on the income the asset produces.

It is interesting to look at how each of your assets are classified under this tax bucket approach. When you try to balance each of these buckets you are hedging future tax risk - that is, you are setting yourself up so that you can draw down different buckets based on the given tax rate.

[Old Limey]

My breakdown is different because I have been retired for over 20 years.

Bond Investments .. 80% (Tax exempt and Tax deferred)
Real Estate ........... 20% (Home and one Condo)
Cash .................... Negligible
Debt ..................... 0%

[BrianF]

Here's how my net worth breaks down:

Retirement investments (401k and IRAs): 12%
Real Estate: 27%
Non-retirement investments (two businesses, independently valued): 64%
Cash and cash equivalents: 11%
College savings: 0.1%
Debt: -16%

[Retire By 40]

Just an estimate
Retirement 45%
Real Estate 30%
after tax 15%
cash 5%
college saving 1%
others 4%

[Ivy]

Retirement 63%
College 6%
Taxable investments 8%
Cash 6%
Real estate 17%

Taxable as % should increase over time, as we have more left over after maxing retirement. College shouldn't move much, neither should real estate as we don't plan to use it as investment vehicle, this is just our home equity

[Nick @ AYoungPro.com]

At this point I am about 90% tied up in home equity. I definitely need to diversify a bit!

[jim]

Our assets :

Home 15%
Rentals 45%
Retirement 30%
Cash 10%

Thats % of net worth after removing liabilities. We have mortgages on our real estate. We're about 50% leveraged on the real estate.

It shouldn't be a surprise that people have more assets in 401k/IRAs now compared to the 80's. Thats just a reflection of the death of pensions and doesn't mean much else. I'd be more interested to see how net worth changed if you could go back and figure the cash value of those pensions and add those in over time.

[abcd]

Test Post - No Assets.

[JNEW]

Mine is approx as follows:

20% HOME

20% INVESTMENT PROPERTIES

20% TAXABLE INVESTMENTS (1/2 college savings)

40% RETIREMENT ACCOUNTS

It would be interesting to know the AGES of those that answered this question. I suspect that we would see (i) a big percentages in homes for the younger among us (ii) a good chunk for college for the mid lifers and (iii) a large percentage of 401K for the seniors among us.

[FMF]

JNEW --

It would also be interesting to know how much of "real estate" noted above is home ownership and how much is investment ownership.

[Jonathan]

In response to JNEW and FMF - My wife and I are 29 and all of our real estate is investment. We rent our home.

[FMF]

For the record, of the 22% listed above for my real estate numbers, 16% is rental real estate and 6% is my home. The former will be growing over the next year or so as well.

[Jeff]

Rough approximation:

Retirement: 65%
Real Estate: 20%
Non-retirement investments: 10%
Cash and cash equivalents: 5%
College savings: n/a
Debt: 0%

[Apex]

Real Estate depends on how you report it too. If you have $1 million in real estate assets and $900K in real estate debt on a $2 million net worth I would argue you have $100K and 5% in real estate, not $1 million and 50%.

If one day I have 100K in cash and the next day I put 50K down on a 500K house with a 450K mortgage do I now have 500K invested in real estate? Do I have 500% of my net worth invested in real estate? I don't think so. You have 50K invested in real estate and 50% of your net worth.

[Jonathan]

Apex - True, and I wouldn't have listed my own that way but that's the way FMF did it in the example so I followed suit. Real estate equity accounts for about 80% of our net worth.

[Jetgirl]

Retirement investments (401k and IRAs): 72%
Real Estate: 27%
**Non-retirement investments: 0%
Cash and cash equivalents: 11%
College savings: 0% (no kids)
Debt: -10% (mortgage)

Right now my husband and I are doing what we can to pay off our mortgage, thus we are working hard at reducing our current debt from -10% to 0%. In just at another year and a half, we will reach that goal and then I hope to work on developing non-retirement investments.

[SteveD]

Cash: 3%
Stock: 2%
Retirement: 32%
Real Estate (equity): 62%
(- Real Estate value: 155%)
(- Real Estate debt: 93%)

Interesting. I bought several properties at bargain prices at the bottom of the recession, and they've appreciated a lot. I'm also abnormally low on cash/stock at the moment because I just bought and renovated another house, but I'm in the process of refinancing to get some cash out.