# Net Worth to Assets Ratio



## CadMan (Apr 16, 2010)

I was just crunching some of my own numbers and am curious what others see as an acceptable or ideal net worth to assets ratio? Maybe I’ve missed it, but I haven’t seen much discussion on this point on here. In my case, my ratio is 48% (i.e. my current net worth is about 48% of the current value of all of my assets.) I’m currently 41 and ideally I’d like to have this number at 100% in the next 4-5 years (i.e. no liabilities at all). 

What are your numbers? Does the size and composition of your assets/portfolio make a difference as to what is an acceptable ratio? Does this ratio matter at all or is your net worth the only number that matters? Again, in my case I have an investment property that I could sell which would increase the ratio, but I don’t think I would sell just for the sake of increasing the net worth to assets ratio.


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## Spudd (Oct 11, 2011)

I don't see how this number is really relevant. When just starting out, many people will have a low ratio due to mortgages/student loans/etc. Later in life, those things have been paid down and the ratio increases. Or in the opposite situation, you may start out with 100% because you rent, but later you buy a house and your ratio drops like a stone.

I think it could be relevant to compare this against a population of people in the same age group, but this data would be hard to come by. 

If you're curious, mine is ~86% and I'm 41. I don't know the true value of my home so it's just an estimate.


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## Ethan (Aug 8, 2010)

I think this calculation is relevant. It is similar to calculating a debt-equity ratio for a company. Just like individuals, companies will have different ratios depending on whether they are a start up or an established company, whether they are going through an expansion or not etc.

My wife and I, aged 30 and 28 respectively, have a ratio of 60%. I don't see this ratio climbing much in the next 20 years as I like to finance my investments by borrowing against the equity in my house. If I sold all of my financed investments and retired the related debt, the ratio would increase to 69%.


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## doctrine (Sep 30, 2011)

Interesting discussion. As of 1 Sep, I'm at 64%. A year ago, I was at 57% so I'm moving in the right direction. I don't own property so it's all investment debt for me. If I continue on my debt payment plan and don't buy a house (currently renting one), I will be at 100% in 4 years.


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## lightcycle (Mar 24, 2012)

I think the kind of debt is more important. Is it investment debt or consumer debt?

There are certain times when its advantageous to have a lower ratio if you're leveraging yourself for a financial opportunity.


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## Sampson (Apr 3, 2009)

I hold the same opinion as Ethan.

I calculate this number (it really is just another line item on the spreadsheet) and use it as a gauge of how susceptible our personal finances are to shocks in the housing market, equity markets, job loss etc.

In fact, I break down that NW:assets into specific asset types for the above reason.

I believe we are at roughly 70%.

I also agree with Spudd that comparing this ratio with other people can be of limited use, but watching your own ratio change over time and understanding why will give you a read on your finances.


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## Jon_Snow (May 20, 2009)

I'm 41 also (popular age on this thread!)... our "number" is around 97%. We are fortunate enough to have bought our real estate before the ridiculous run-up in prices on the west coast. Thanks to solid incomes we payed off all of our property in quick fashion. A zealous hatred of all forms of debt, plus an apparent genetically ingrained frugality (75% savings rate) are big factors as well. We could have much more "stuff" like the ski-doo, fifth-wheel, ATV lovin' family next door.... but, we prefer to never have to worry about debt or money issues. When we spend, we spend on quality things that truly enhance our happiness - we pay for them with money that we possess IN THE BANK.

We are very aware that we are nowhere close to the Canadian norm. Family and friends think we are a bit odd, having an idea of our incomes, and looking at our lack of "bling". :tongue-new:

I agree that this number doesn't mean alot - we don't like debt, and tend to kill it as quick as possible, thus the 97% in our case.


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## james4beach (Nov 15, 2012)

I'm age 30 and my number is 99%.
Only debt is credit cards and I hold it for the interest-free period and then fully repay.
I rent and have no interest in buying into this real estate bubble


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## Jon_Snow (May 20, 2009)

No kidding J4B... I thank my lucky stars that I bought my condo and recreational acerage when I did. If I were starting out today, I'd probably rent too.


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## james4beach (Nov 15, 2012)

I do wish that I owned property and more tangible assets, but I'm not buying now especially since I don't have job security.

So I opt instead to keep hoarding cash & liquid assets


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## Maybe Later (Feb 19, 2011)

I'd be interested in what MoneyGal has to say about including the present value of your current income stream or something similar when making evaluations such as this. I don't know how I'd calculate such a thing but it might be interesting to really see where all your assets really lie.


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## jcgd (Oct 30, 2011)

james4beach said:


> I'm age 30 and my number is 99%.
> Only debt is credit cards and I hold it for the interest-free period and then fully repay.
> I rent and have no interest in buying into this real estate bubble


Ditto


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## GoldStone (Mar 6, 2011)

CadMan said:


> I was just crunching some of my own numbers and am curious what others see as an acceptable or ideal net worth to assets ratio? Maybe I’ve missed it, but I haven’t seen much discussion on this point on here.


You are getting some good responses but try this as well:

What portion of your net worth should your house comprise? 
http://canadianmoneyforum.com/showt...-of-your-net-worth-should-your-house-comprise

FWIW, I don't include our assets in the NW calculation. The only number that matters to me is the size of our liquid investment portfolio. It will cover the bills in retirement. House is just a place where we live. It's an asset alright, but it's also a liability (think of all the expenses it generates). Cars and furniture aren't worth much.


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## Jon_Snow (May 20, 2009)

GoldStone, I include real estate in net worth calculations because it makes the number much more enjoyable to look at.


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## GoldStone (Mar 6, 2011)

I'm not in BC. Our house isn't worth that much. :biggrin:


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## andrewf (Mar 1, 2010)

Not sure how meaningful this is. I'm at 100%... not counting credit card liabilities not yet due.


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## crazyjackcsa (Aug 8, 2010)

I'm 33 and it sits at 80%. The house is the debt, and 67% of my net worth . The first number drops every year. In 5 years it's 100%. The second number will climb until the house is paid off, and then will begin to drop.


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## andrewf (Mar 1, 2010)

You can only hit 100% when you have no liabilities.


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## Plugging Along (Jan 3, 2011)

I don't know how much this number on its own matters. Our ratio is about 12%. That's for investments. I could sell some investments and be at zero percent, it down see how that would really help me. I would rather have $10000000 assets with higher liabilities than a $10 to my name, but not owe anything and be at 100%


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## sags (May 15, 2010)

How can this equation even be calculated...........when people can't even agree on what should be included in "net worth" calculations?


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## brad (May 22, 2009)

sags said:


> How can this equation even be calculated...........when people can't even agree on what should be included in "net worth" calculations?


Not only that, but the value of both net worth and assets is a moving target, and could change by 20 percent or more in a single day. For people who calculate this ratio, how often do you recalculate it? Every month? Six times per year?


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## houska (Feb 6, 2010)

I keep track of ratios like this in my 1x or 2x yearly financial networth update.

For net worth I sum the value of all financial assets (investments and bank accounts), a conservative estimate of real estate asset market value, and a conservative estimate of likely proceeds from liquidating major other assets (car, musical instruments). I also include the actuarial value of the defined benefit pension one of us has (the last reported value).

The ratios I track are Debt/NW (leverage ratio), (Market exposure)/NW, (Real estate)/NW. It's a measure of how big our various risk exposures are and how resilient our NW is. It is more meaningful since the mortgage we hold is an investment loan, i.e. we have set the dial on Debt/NW so that (Market exposure)/NW can reach a target level. When I have time, I intend to separate out the (Market exposure)/NW into asset classes, e.g. income assets, Cdn equity, other developed market equity, and developing markets. As someone who hopes to have a retirement with lots of travel and discretionary income, I suspect it is very likely we have far too much an undiversified long exposure to the Canadian economy, and to the Canadian dollar in particular.

As others have said, there are many ways one can calculate personal NW. Some people might want to exclude principal residence, depreciating assets like cars, or the pension actuarial value. Someone particularly geeky might want to include the present value of future OAS or CPP payments, or even (if you were Prof. Moshe Milevsky in particular) the net present value of expected future earnings in excess of expenses. Or do some sort of adjustment for deferred taxes on RRSPs. The sky's the limit, and I find the value is in using a consistent and semi-reasonable definition where I can track changes over time rather than getting it precisely right.


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