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A household with a $1.5M house, an $800,000 mortgage and $900,000 of savings picks the Balanced financial independence book and puts 50% of its savings in stocks. Counted with the house, the right number is 56%. The house is the difference, and the direction surprises most people: it raises the stock weight in the liquid book.
How much of a house is stock
On annual returns, a Los Angeles house moves with the S&P 500 at a beta of 0.23 over 1988 to 2025 and a national house at 0.10. Over 2006 to 2025 the figures are 0.42 and 0.21, because that window is dominated by 2008, the year houses and stocks fell together. The page uses 0.2 as the working number and lets the reader pick from the four.
Beta is the part that matters for the mix. The rest of the house’s behaviour is not stock-like: its price is never marked, it pays a coupon in rent or rent not paid, and with a reserve it is never sold into a fall. The price index reports 4% volatility; removing the index’s smoothing gives about 17%, but that is a number the household never lives through, because it never transacts at the low. The 2008 kind of year sizes the reserve, not the book.
So the house enters the allocation as one number: 0.2 times its value in stock exposure. A $1.5M house supplies $300,000. Leverage does not change that; it changes how large the house is relative to the household’s net worth.
The count
A lifestyle sets a target share of net worth in stocks: 65% for Grow wealth, 50% for Balanced financial independence, 45% for Leave a legacy. The house supplies part of it; the liquid book holds the rest.
The sample household’s net worth is $1.6M: $700,000 of home equity and $900,000 of savings. With the Balanced FI lifestyle the target is $800,000 of stock exposure. The house supplies $300,000, so the savings hold $500,000 of stock, which is 56% of the book, against 50% for the book alone. The remaining 44% goes to Treasuries and gold in the book’s own two-to-three ratio: 18% and 27%.
| lifestyle | target | house supplies | liquid book stocks / Treasuries / gold | the plain book |
|---|---|---|---|---|
| Grow wealth | $1,040,000 | $300,000 | 82 / 5 / 13 | 65 / 10 / 25 |
| Balanced financial independence | $800,000 | $300,000 | 56 / 18 / 27 | 50 / 20 / 30 |
| Leave a legacy | $720,000 | $300,000 | 47 / 24 / 29 | 45 / 25 / 30 |
The liquid book holds more stock than the plain book in every row, because the target applies to net worth and the savings are only 56% of it. The house supplies a fifth of its value, and the savings have to supply the rest.
When the house is the equity sleeve
Only when 0.2 times the house exceeds the lifestyle’s target does the count run the other way. A household with a $3M house, $2.5M of home equity and $1M of savings has a Legacy target of 45% of $3.5M, about $1.6M. The house supplies $600,000, and the remaining $1M is every dollar of its savings. Beyond that the target is out of reach and the household’s decision is the house or the loan, not the book.
What the house does change
Two things, neither of them the stock weight.
The reserve. Leverage is what makes a house dangerous, and the danger is a forced sale. The household holds six to twelve months of spending and mortgage payments in bills outside the book, sized so a 30% fall in the house plus a year without income never forces a sale. The 2021 buyer’s $700,000 of equity survives that fall; a 2026 buyer with 20% down does not, and only the reserve keeps the house.
The loan. Its rate against today’s Treasury yield decides whether to prepay, and the refinance option decides whether to refinance. Both are on the mortgage page.