I’m feeling a bit stupid today looking at that ratio I’ve been tracking.   Debt / Liquid Assets.   This all came about because I was curious what the average change over the last 12 months to that ratio has been.

Currently the metric sits at 1.2.   Which is doh… 120%.  I have 20% more liquid assets than debt.   If I had a 2.0, I would have 100% more assets than debt.  Psychologically going from 1 to 2 seems like a more difficult goal than going from 100-200.   This may be pure preference, but going from 100 to 200 makes it easier to view the numbers and those small changes that occur more palatable.

So the answer to my original question.   In the last 12 months, the average change is 3.3%.   Going back 24 months, 2.3%.  Going back 36 months it is 1.8%.  Over the entire period I’ve tracked .9% (should probably chart this as a moving average of sorts).

So time to hit 200%?   At rate of the last year = 24 months, at rate of last 2 years = 34 months.   With the trend having been what it has been, and nothing goes awry will hit the mortgage payoff goal from the last post with a metric above 2.0 or 200% .

So why would it increase.  Part of it is the amount of principal vs interest paid over the last 10 years.  Acceleration of mortgage payoff.  Doing a bit with excel I can see it started as .15%, and now at around .65%.   So that will continue to accelerate from the mortgage perspective

The other parts are increased income & bull market.  I don’t have all the numbers to track that, but I know my compensation from a stock standpoint will peak this year.

The last part, the bull market. If that were to end, Let’s say a max draw down of 20% on my portfolio (based on how I have things allocated now… that’s a pretty bleak scenario something like 2008 where stocks tumbled over 50%).   A major stock market tumble would effect my metric short term and also income (since  a good portion of it is stock).  In that worst case scenario The metric essentially goes back to 1 or 100%.  Perhaps a bit lower.

On the bright side, I have a plan in place to re balance at this point (move more bonds in to stock, etc).  It’s an opportunity to return a bit more profit if I start making these decisions as the S&P drops by double digit percentage.  I’m not trying to catch a bottom, but rather trying to buy value after a drop.

Then you wait to lock in some ‘enhanced’ profits over a period, and rotate back in to my modified all-weather portfolio after locking in some of those profits.  Patience is the key here….


One other topic that’s been on my mind lately, and I need to research quite a bit more.  My real estate holdings only account for 5% of my entire investment picture.  The more I read about REIT’s, it seems like there is a good case to increase that number for my portfolio.   Perhaps 10-15%, maybe as high as 20%.

The last recession involved a housing crisis, so real estate did not fare well.  However over longer periods Real Estate has been less correlated to stocks and bonds, and has fairly consistent returns.

Chart below shows SPY to ICF correlation.  It fluctuates like all correlations.   Lately in my hunt for investments I look for less correlated investments that have had good track records over long periods of time.   Real Estate generally fits that bill.  REITs add a layer and often operate differently, and have different characteristics than other investments (ie, Taxes for me).



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