OT: Portfolio Liquidation

Saul Investing Community:

In order to pay for the remodel of our new house I liquidated a large part of my portfolio. While I did this with a lot of pain in my heart as I was as comfortable with my portfolio as I had ever been, given that it was near an all time high and a personal growing concern that the trump market run appears to be reaching its ceiling (based on performance of my portfolio) and due for a significant correction, I am ok with the decision. Especially considering the money is shifting Tom one investment vehicle (shares) to another (house).

I wanted to ask this community about their experiences of portfolio liquidation and how you rebuilt your portfolio once you stepped back in which for me will happen some time towards the end of the year.

For the sake of not clogging this board with an Off Topic discussion, if you are willing to share your experience and advice, please respond directly to me.

A note to Saul-
I have been reading about your wisdom for years. Together with you bringing together some of the most skilled investors in fooldom, you have helped me to make a better home for my family. I want you to know I am extremely grateful.

Best
Bashaar

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A note to Saul-
I have been reading about your wisdom for years. Together with you bringing together some of the most skilled investors in fooldom, you have helped me to make a better home for my family. I want you to know I am extremely grateful.
Best
Bashaar

Thanks Bashaar, I’m very pleased to have been of help!
Saul

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Bashaar,

Congratulations on saving/earning enough to fund your home remodel. That was probably an emotional decision. It also can lead you to call the remodel an investment rather than expense. Investing is forgoing current consumption to earn returns that may be used for even greater consumption in the future. You wrote:

money is shifting Tom one investment vehicle (shares) to another (house)

Now, a house can be an investment. Houses can be rented out to produce income. If you live in your house then you are consuming it. If you rent out your house then it can produce income and you can evaluate it as an investment by comparing the cost of the remodel/expansion and income generated from the rental payments to you versus the returns that you can make by investing in other investments (stocks). If you remodel the house and live in it then you are consuming the capital and foregoing gains in the stocks that you would have otherwise been invested in. Sure, your house might appreciate in value and this falsely leads people to call it an investment. In actuality the remodel is probably increasing your monthly expenses going forward; some of these increased costs can include higher property taxes, increased utility expenses (if your house in now larger), increased spending on new furniture (to fill the additional square footage), increased spending on other items (such as clothing to fill the larger or new closets), and even increased spending on new offspring (assuming you produce more children to fill the new bedrooms).

There’s a book called “Rich Dad, Poor Dad” that discusses assets versus liabilities. An asset is something that puts more money into your pocket every period because it is generating a return on capital. Your money is working for you. A liability is something that takes money out of your pocket every period. The house that you live in is a liability.

Anyway, my point is that you have made a decision: In order to pay for the remodel of our new house I liquidated a large part of my portfolio. This decision is neither right nor wrong. It is a choice to spend now and accept that you will as a result earn less investment income in the future. This may have financial and other consequences on your life. You may be happier in your home. You may need to work a number of additional years before retiring. Here’s a post that’s related to this topic:

http://discussion.fool.com/the-invisible-workers-31677596.aspx?s…

Chris

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Chris:

That was a great post! Taking money out of investments for a remodel is an investment sin imo…should never had happened. Would be better to add to mortgage which is still deductable and not tie up money in an illiquid asset.

Furthermore, one rarely gets back dollar for dollar in these remodels with a sale of the home…so there is an immediate loss that will not be recoverable in most cases.

That said, if you can’t enjoy your money then what do you have it for? So to each his/her own.

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I wanted to ask this community about their experiences of portfolio liquidation and how you rebuilt your portfolio once you stepped back in which for me will happen some time towards the end of the year.

I was forced to do this last summer when my employer changed venues for my 401k plan. The old plan was self-directed, buy whatever you want and deal with the consequences (which was perfect for me!). The new plan has a menu of mutual funds to choose from. Nothing I could do there but pick some funds. They’ve done quite well so far but the fees are robbery.

To make up for it, I have been buying small positions of the more promising stocks in my private account and slowly accumulating shares. It’s hard to deal with the per share prices of something like GOOG and AMZN here b/c there’s just not that much cash flowing here. But on the bright side, it did force me to dump the clutter and rethink which companies I really wanted to stay with.

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