I Tried to Account for Housing Risk — and Learned Why Most People Don’t
I Tried to Account for Housing Risk — and Learned Why Most People Don’t
After thinking a lot about diversification and risk, I started to feel uneasy about something I hadn’t really questioned before:
my house.
It’s by far the biggest financial exposure I have. One property, one city, lots of leverage, not very liquid, and closely tied to the same local economy that pays my salary. On paper, that looks like a pretty concentrated position.
So naturally, my next thought was:
Shouldn’t this affect how I think about my investment portfolio?
That question felt reasonable. Almost obvious.
It turns out it was also a good way to learn why most people don’t want to think about housing that way at all.
The question I asked
I went to Reddit (r/PersonalFinanceCanada) with what I thought was a fairly straightforward question:
If my house is already a big, concentrated exposure, should I be more conservative (or more aggressive) with my investments? Or should I just ignore housing when thinking about asset allocation?
I wasn’t looking for formulas. I wasn’t trying to optimize anything. I just wanted to know how people actually think about this in practice.
The response was… blunt.
The answer I kept getting
The most common replies were some variation of:
- “Stop thinking about it.”
- “Your home isn’t an investment.”
- “Treat it as shelter, not part of your portfolio.”
- “You’re overthinking this.”
At first, that was a bit frustrating. It felt like people were dodging the question.
But after sitting with it for a while, I realized something important:
They weren’t saying housing doesn’t matter.
They were saying they deliberately choose not to model it.
That’s a very different thing.
What people actually do instead
Once you look past the blunt phrasing, a clear pattern shows up.
Most people do let housing affect their financial decisions — just not in the way I was imagining.
Housing tends to enter the picture in two places only:
-
Mortgage vs investing decisions
Paying down a mortgage is a guaranteed, tax-free return. Investing has higher expected returns but more uncertainty. People weigh those two, often emotionally as much as mathematically. -
Retirement cash flow planning
Owning a home outright later in life reduces required income. That affects how much people need to save, not how they allocate assets.
What people don’t usually do is:
- adjust equity/bond allocations because of housing
- treat their home like a giant real estate ETF in their portfolio
- try to “offset” housing risk with international equities
Not because those ideas are obviously wrong — but because they tend to make decisions worse, not better.
The thing I underestimated: behavioral cost
In theory, you could try to model housing as:
- leveraged real estate exposure
- geographically concentrated risk
- correlated with job income
None of that is false.
But in practice, doing this introduces a big hidden cost: mental overhead.
It creates questions like:
- “Am I now too conservative?”
- “Should I take more equity risk to balance housing?”
- “What if housing crashes but stocks don’t?”
- “What if both crash at the same time?”
Very quickly, a simple investing plan turns into a constantly shifting target.
And the people replying on Reddit weren’t being anti-intellectual. They were being pragmatic. Many of them have already learned that more complete models aren’t always better models.
Separation as a design choice
This was the real insight for me:
Keeping housing out of portfolio decisions isn’t ignorance.
It’s a design choice.
A choice to:
- reduce anxiety
- avoid overfitting a personal financial model
- focus on decisions that actually move the needle
In other words, people aren’t saying “housing doesn’t matter.”
They’re saying:
“This is not where I want complexity to live.”
Where I landed (for now)
I still believe it’s technically correct that housing affects overall risk.
But I now think it’s also reasonable — maybe even wise — to keep that risk mentally separated from investing decisions, and handle it indirectly:
- through mortgage paydown choices
- through emergency funds
- through career and income stability
- through simpler, more robust investment rules
Instead of asking:
“How should my house change my portfolio?”
A better question might be:
“Where does accounting for housing actually help me make better decisions — and where does it just add noise?”
That framing feels much more grounded.
A broader pattern I’m starting to see
This isn’t just about housing.
It’s the same pattern I keep running into with investing in general:
- The theoretically complete model is often unusable.
- The best long-term strategy is the one you don’t constantly rethink.
- Ignoring some risks on purpose can be rational.
That doesn’t show up in textbooks, but it shows up very clearly in how people behave over decades.