Bursting Asset Value Illusions Before It’s Too Late

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Bursting Asset Value Illusions Before It’s Too Late

Busting Asset Value Illusions Before It’s Too Late


Know which assets will serve you best in your retirement future.

When we talk about financial fitness, one of the most important measures is the value of our assets. The problem is that we often have false expectations about some asset types, and we need to break those illusions to focus on our real financial condition.

Let’s first clarify the five different kinds of assets:

 

Personal

Clothing, furnishings, and jewelry fit into this category. Most of this stuff decreases in value to less than half what we paid for it before we even get it home.

 

Household

This includes real estate, cars, and appliances. Often they either appreciate over time or provide a fair value over their life. Loans that we have against them reduce their value – such as mortgages and auto loans. Subtract those, we get the net value.

 

Employment

Some employers still provide a pension. Since most companies under-fund their pension plans, we might discount the value of this asset, but it’s still an asset. In addition to the pension value, employability (the ability to work and earn an income) is an asset as well, and perhaps the most valuable one.

 

Social Security

Although Social Security’s solvency is in question these days, unless it is eliminated entirely, we should still consider the value of this future income stream as an asset. It would be wise to discount it somewhat.

 

Financial

This is our 401(k) plans, individual retirement accounts, brokerage, mutual fund, and savings accounts. This one usually gets the most attention, because when we have plenty in this category, we don’t need to worry about the others.

 

Ignore the Illusions

The first common mistake is thinking that our personal assets somehow contribute to our future security. Take a stroll through the Goodwill store, and you’ll see what those things are worth should you ever need to sell them.

Possibly the most harmful illusion, however, is that our household assets can become financial assets.

This one is harder to break because past generations have done it successfully. Retirees sold their household assets in New York or Chicago or Los Angeles, gained enough financial assets and moved to Florida or Arizona.

This method doesn’t work as well for those who live in say, the great Midwest, where the property doesn’t boom every year. And as we saw in the Great Recession, property values can be nothing more than a mirage.

 

Samuel J. Sweitzer
Samuel J. Sweitzer
Founder and President of Anson Analytics, Inc. - an RIA firm specializing in Research Based Investment Management for Corporate Retirement Plans and Private Investors. Sam is a Chartered Financial Analyst (CFA) and currently serves as Anson's Chief Investment Officer. Sam resides in South Metro Atlanta with his wife and two daughters.

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