You may have heard the statement that you should not include your home as an asset...

You may have heard the statement that you should not include your home as an asset in your investment portfolio. Assume that your house will compromise up to 75% of your assets in the early part of your investment life. Evaluate the implications of omitting it when calculating the risk of your overall investment portfolio:

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Expert Solution

Implications of omitting home when calcualting the risk of your overall investment portfolio.

1) Standard deviation of new portfolio will be high as compared to previous one.

2) Diversification benefit will no longer be seen in new portfolio as residential property is not correlated to stocks, etc.

3)Risk adjusted return will seen as reduced as compared to previous one.

jeff jeffy answered 2 years ago

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