If you like building spreadsheets and tracking your financial progress, it’s tempting to treat everything with financial value as part of your “portfolio.” People often try to squeeze items like Social Security, pensions, annuity income, or even home equity into their asset allocation—like they’re just extra bonds or “hidden” investments. The problem is that a portfolio isn’t the same thing as net worth, and it isn’t the same thing as future income.
A cleaner way to plan is to separate three buckets:
- Your portfolio (investable assets)
- Your net worth (everything you own minus everything you owe)
- Important stuff that’s neither (usually future income streams)
That separation makes your investing plan easier to manage—and keeps you from fooling yourself with math that looks precise but isn’t actually practical.
What “Portfolio” Actually Means
Your portfolio is your investable assets—the money you can allocate across investments and actually manage: taxable accounts, retirement accounts, brokerage holdings, and similar investments. This is the bucket that gets an asset allocation (your mix of stocks, bonds, cash, etc.).
Because you can buy, sell, rebalance, and adjust these holdings, your portfolio is where you actively control risk. In that sense, investing is less about “finding winners” and more about risk control, and your asset allocation is the main control knob.
What Goes in Net Worth But Not in Your Portfolio
Your net worth is the broad scoreboard: everything you own minus everything you owe. It includes your portfolio, but also includes many things that are not “portfolio holdings.”
Examples of things that are typically part of net worth but not part of your portfolio:
- Your home (and the mortgage against it)
- Cars, jewelry, and other possessions (even if many people don’t bother valuing them precisely)
- Debts like auto loans, credit cards, HELOCs, and other liabilities
These items matter to your overall wealth picture, but they don’t belong inside the same spreadsheet where you rebalance your stock/bond mix.
What Doesn’t Go in Either (But Still Matters a Lot)
Some of the most important “financial” things in your life are income sources, not assets you manage like investments. The article argues that these don’t belong in net worth or in your portfolio allocation:
- Your job (and your spouse’s job)
- Social Security
- A pension
- Certain annuity income streams (like an immediate annuity you’ve already purchased)
Why? Because they’re typically not practical to value accurately, they often aren’t liquid, and you generally can’t rebalance them the way you can with your investable assets.
The one exception: if you convert it into investable money
If you sell something and turn it into cash that goes into your investable accounts—then it becomes portfolio money. The article notes that selling a home and investing the proceeds would qualify, and similarly selling certain income rights and investing the proceeds would, too.
The Better Way to Use Those Income Streams: Reduce the “Job” Your Portfolio Must Do
Even though pensions, Social Security, and other guaranteed income streams aren’t part of your asset allocation, they can still dramatically change your retirement math—because they reduce how much income you need your portfolio to generate.
Example logic from the article:
- If your lifestyle costs $120,000/year
- And guaranteed income sources cover $67,000/year
- Then your portfolio only needs to produce $53,000/year—not the full $120,000/year
That can significantly lower the portfolio size you need to retire. The key point: subtract income from expenses—don’t pretend those income streams are “bonds” inside your allocation.
The same concept can apply to certain personal assets that reduce your living costs (like owning a home instead of renting), but the article draws a clear line: investment properties belong with investments; the home you live in is a consumption item and shouldn’t be shoved into a portfolio allocation.
Why People Try to Force Everything Into the Portfolio (and Why It Backfires)
The article suggests a few common reasons people do this:
- They bought an income stream with portfolio money, so they feel like it should still “count” as portfolio. But buying an income stream is spending investable money on a different kind of financial tool; it’s not the same as holding a tradable asset you can rebalance.
- It makes them feel richer—like assigning a big number to future Social Security benefits. But inflating your “portfolio” with hard-to-price promises can create false confidence.
- They saw someone else do it and assumed it was sophisticated—when it often just creates complexity without improving decisions.
A Practical Rule of Thumb
If you want a rule that keeps your planning clean:
- Portfolio = investable, rebalance-able assets.
- Use guaranteed income streams to reduce the income your portfolio must provide—don’t treat them as “extra bonds.”
If you still insist on assigning values and “bond equivalents,” you can—it’s your system. But the article’s argument is that it usually makes portfolio management harder with little payoff.