FinancialSamurai.com recommends several models for real estate allocation based on age, using work experience as a proxy for human capital. These models vary in their allocations for alternative investments but consistently allocate up to 55% of your portfolio to real estate, particularly your primary residence, earlier in life. However, the author does not provide detailed explanations for these specific percentages.
The strategy aims to diversify your investments and mitigate the impact of rent cost inflation. Over time, the allocation to real estate should gradually decrease to approximately 20% by age 70, reflecting the growth of other assets in your portfolio, see Table 11.5 “Recommended Net Worth Allocation by FinancialSamurai.com”.
Your 20s is a time to save aggressively and take maximum investment risk. Any losses can be easily made up by work income.
Buy a primary residence and allocate 5% of your net worth to risk-free assets. Aim to achieve real estate neutrality once you know your living and career preferences. Renting yields a -100% return. Your accumulated wealth and your income guides the house price. See
Shift focus to stocks and bonds over real estate. As net worth increases, your primary residence becomes a smaller part of your portfolio. Consider investing in rental properties, REITs, or private eREITs to gain real estate exposure.
Balance your portfolio with roughly equal allocations in stocks, bonds, and real estate (30%-35% each), maintaining a 5% risk-free allocation. By this age, prioritize financial security and reduce stock market risk. Bonds and real estate should generate most of your passive retirement income.
All percentages assume a positive net worth. If you have student loans or negative equity, focus on reducing non-mortgage debt while building wealth.