I know this is a common topic and I've read through some of the other posts, but I still feel I don't fully understand the concept. I get the argument for how it is the opposite of a bond, but when I actually try to use it for calculations it seem impractical.
For example: Let's say I have $100k in cash and want to buy a $200k house. I buy the house so I now have a $200k asset (house) with $100k liability (mortgage). I now earn $100k additional cash with a desired portfolio allocation of 90/10. If I put that cash into equity I now have $100k in equity and -$100k in fixed income, how do I compute an allocation from that (divide by 0). If I had $200k to invest I end up with $200k equity and $-100k bonds, is that considered 200% equity? It seems to make this model work you need to plow all cash you have into the mortgage until it is gone, but that may or may not make sense depending on desire for diversification (exposure to equities).
I think with this logic you have to completely pay off the mortgage at which point you can now say you have nothing invested, and only then can you start a portfolio of 90/10.
Am I missing something?
For example: Let's say I have $100k in cash and want to buy a $200k house. I buy the house so I now have a $200k asset (house) with $100k liability (mortgage). I now earn $100k additional cash with a desired portfolio allocation of 90/10. If I put that cash into equity I now have $100k in equity and -$100k in fixed income, how do I compute an allocation from that (divide by 0). If I had $200k to invest I end up with $200k equity and $-100k bonds, is that considered 200% equity? It seems to make this model work you need to plow all cash you have into the mortgage until it is gone, but that may or may not make sense depending on desire for diversification (exposure to equities).
I think with this logic you have to completely pay off the mortgage at which point you can now say you have nothing invested, and only then can you start a portfolio of 90/10.
Am I missing something?
Statistics: Posted by sharx — Wed May 22, 2024 11:03 am — Replies 30 — Views 985