Then – consider that most families fitting this profile have no more than 50% equity in the home. Using the 55% guideline, the non-house assets need to be at least 0,000.
Disposable incomes falling as wage gains are outstripped by inflation. This also explains the need to find more diversification, and love liquidity.
Over a third of all households in the nation now ‘heavily indebted.’ And the place where they stuffed all this borrowed money (even the banks say) is destined to erode – their houses. Here’s how the bankers put it: True, debt is only one side of the household’s balance sheet; the asset side also counts, and both total assets and household net worth have been climbing until the last couple of quarters. Never again, for example, will I run for the honour of fitting my tanned and athletic bottom into a seat in the House of Commons. They can’t see rising house values as dangerous or falling interest rates as a warning. For most people, having the bulk of their net worth in liquid assets is the best defence against what’s coming. The result should be the percentage of net worth tied up in residential real estate. As a consequence, in a country where 70% of people have most of their money in the same thing, don’t be surprised at what happens next. Garth, I agree with most of your views, but I would like to know what you think of the couch potato investing theory of holding Index Funds and ETF’s and reorganizing them once a year to save on MER fees?
Look, you aren’t totally screwed yet, might just be 1st base, or 2nd. We still got ’em and though houses slowed down it’s not like they’ve stopped making, or selling them. They’re not so hot on keeping the same squeeze that long, but there are great exceptions to that comment.
Not to worry, when people get hungry & cold, they will finally call their realtor, or Bankster.
As you may have heard this week, the country’s bank economists are catching up to this bottom-feeding blog. (Our theme song.) The bank says most of this debt’s because of ‘punch drunk’ Boomers who turn out to be hornier than their boomerang kids. Used to be that hitting middle age meant buying a new Corvette, getting a dangly gold thing around your neck, a pointy little hat to cover the bald spot, and a buxom babe to replace the wife your children used up. Now all that useful energy is channeled into a trophy home with a new Acura sedan in front or (in Alberta), an Escalade with silvery balls.
So here’s the result: Boomers heading into retirement with fat houses and scant investments. In an economy 65%-fueled by consumer spending, this is like shooting the farm’s only milk cow. Hence my repeated calls to reduce the amount of net worth in the most dangerous of assets, your house.
So, using the “rule of 90”: Take a 35-year-old w/ wife, 2 kids, and a house in the GTA that is 0,000 (the average house price).
If that house is mortgage-free (ya, right), the “rule of 90” would dictate that the 0,000 should represent 55% of the net worth… the household should have at least 0,000 in net worth (0,000 in non-house assets).
Imagine a place where four in every ten families had borrowed so much that their debt was excessive.