include LLC shares in net worth?
include LLC shares in net worth?
Hi folks.
When calculating net worth, should I include the value of my LLC membership? The company has been valuated, so I can assign a price to both A and B shares, however I'm not able to sell the shares.
Thanks.
When calculating net worth, should I include the value of my LLC membership? The company has been valuated, so I can assign a price to both A and B shares, however I'm not able to sell the shares.
Thanks.
Re: include LLC shares in net worth?
You can't sell them ever? Or just for a period of time?
If it's just that you can't sell them until some time in the future, I would count the value in net worth, keeping in mind that the shares are illiquid for now.
If it's just that you can't sell them until some time in the future, I would count the value in net worth, keeping in mind that the shares are illiquid for now.
Re: include LLC shares in net worth?
I honestly don't know; I have no desire to sell them, but if I wanted/needed to, I don't know what the process would be.prudent wrote:You can't sell them ever? Or just for a period of time?
They currently amount to about 10% of my portfolio value, and maybe 7% of net worth.
Re: include LLC shares in net worth?
Include them or don't, this isn't an official statistic. It's up to you.
I would include them.
I would include them.
"Index funds have a place in your portfolio, but you'll never beat the index with them." - Words of wisdom from a Fidelity rep
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Re: include LLC shares in net worth?
If it's just for your own records then it doesn't matter what you do. But clearly in accounting you would include all assets in your balance sheet. Additionally if you're doing any estate planning, you'd obviously have to have this in your net worth.
Re: include LLC shares in net worth?
Followup question for other LLC members - do you include LLC shares when analyzing your portfolio AA?
Re: include LLC shares in net worth?
I'm an owner in two LLCs, however they have not been valuated. I do include my initial/base investment as part of my net worth (since they could be sold) but not part of my AA as the returns on both investments are put into my portfolio. Hardly scientific, that's just how it makes sense for me and makes it easier. I don't know how I would classify the investment, part of a small cap tilt?
Re: include LLC shares in net worth?
Whether to add them or not is step 2 in my opinion. If it is "valued" but you can't sell it it has no value. So step 1 is to find out what rights and obligations you have for liquidation.
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Re: include LLC shares in net worth?
I would/do exclude any illiquid asset. Risk needs to be allocated in part to protect against worst case scenarios. If, worst case market shows up and illiquid property is still illiquid, then a portfolio needs to be able to stand alone. This is of course relative. If someone has 1M portfolio and 50K in an illiquid investment, then it might just be included because it doesn't throw off anything and long term it's part of the portfolio anyway. If the ratio was more 1:1, then it probably wouldn't be included, or included at a large discount. And even if it's not included specifically, then it's often indirectly included because it might impact the portfolio calculation for the need to take risk (like someone with a pension might have an increased ability to take risk because the portfolio isn't the *whole* story, but less need to take risk because of the same reasoning). Art, not science.feh wrote:Followup question for other LLC members - do you include LLC shares when analyzing your portfolio AA?
Re: include LLC shares in net worth?
Because my ownership in a small company is not liquid, I do not consider it an asset for the purposes of net worth. I certainly do not consider it a part of my AA (would it be ultra-micro cap US?) It is the source of my income, but I could not sell it to a stranger on the street. Any sale requires permission of the other partner of the firm, so I do not consider it to be anything other than security that I will not get fired (hopefully, the business will not go under... but that risk is there whether I own it or not). I DO count the commercial real estate that I own in a LLC. Even if the company went under, the real estate would become an income producing property, as it is one of a very few larger buildings in the small area where it is located. While, of course, I hope the firm never goes under, and I hope to sell my portion when I retire, I do not count it in my net worth because it is so illiquid and person to person transfers can be quite difficult to know in advance what the actual sale price would be.
I hope that helps!
I hope that helps!
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.
Re: include LLC shares in net worth?
I think whether and how you include LLC assets is contingent on the situation.feh wrote:Followup question for other LLC members - do you include LLC shares when analyzing your portfolio AA?
• I'm self-employed and the business is an LLC; so, for that LLC I draw a salary and also have an i-401k. Those go into the portfolio and net worth calculations. But you asked more about shareholder situations, so.....
• For a different LLC, I hold 25% shares. It goes on the balance sheet as a placeholder with no value beside it. Currently, it does not generate distributions, but when it does, I will reconsider how it should be included. I don't include it in net worth calculations or portfolio AA.
• For a third LLC, spouse holds about 5% shares and this one has a valuation. It is listed on the balance sheet under "cash" assets but we have the cash holdings sectioned between liquid and not; this valuation is listed under illiquid. I do not include it in portfolio AA calculations.
• A fourth LLC has a very specific value. It currently generates monthly distributions and will have a balloon lump-sum payout in a few years. This one is on the balance sheet under illiquid cash. I do not include it in portfolio AA calculations.
- danwhite77
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Re: include LLC shares in net worth?
I have a very small VC investment in an LLC. The LLC has undergone a liquidity event during which a large, sophisticated investor bought in at a (presumably) closely analyzed valuation. However, I exclude the invested amount (and extrapolated value from the liquidity event) from my net worth calculation for two reasons. First, the venture is highly speculative and may very well fail. Second, this is not what I would characterize as a Boglehead investment (which otherwise dominate my portfolio) and if it hits, I'll consider it "found" money. That is, in my own personal situation, I consider the investment more akin to speculation (as compared to investment) and adjust my assessment of my net worth based on that opinion. Your situation could be different, of course, just my $.02.
"While some mutual fund founders chose to make billions, he chose to make a difference." - Dedication to Jack Bogle in 'The Bogleheads' Guide to Investing'.
Re: include LLC shares in net worth?
The only reason I can think of for calculating your net worth, other than making you feel good, is to be allowed to trade options through a brokerage, or perhaps, to decide whether you should buy long term care insurance. Net worth is not a very useful number.
What really should concern most people is the allocation of their investable (liquid) assets. Liquid assets are ones that you can easily buy and sell small amounts of. There's another thread with a wonderful picture of a house which has been cut in half with a caption about rebalancing. Houses and other real estate, airplanes, LLCs are not useful things to include in an asset allocation because you can't buy or sell arbitrary amounts.
From the point of view of maximum expected returns, your portfolio should be close to 100% stocks; any portfolios with more than a small fraction of other assets will earn less money. The only logical reason for not being 100% in stocks is because you're willing to trade off lower returns for less up and down movement, less volatility.
You can count whatever you want in your asset allocation, LLCs, houses, art collections, present value of pensions or whatever but if the result is that is what is left contains such a high percentage of stocks that you panic and sell when the market goes down, then you shouldn't have included those things. The end result of a the asset allocation process should be volatility you can live with.
What really should concern most people is the allocation of their investable (liquid) assets. Liquid assets are ones that you can easily buy and sell small amounts of. There's another thread with a wonderful picture of a house which has been cut in half with a caption about rebalancing. Houses and other real estate, airplanes, LLCs are not useful things to include in an asset allocation because you can't buy or sell arbitrary amounts.
From the point of view of maximum expected returns, your portfolio should be close to 100% stocks; any portfolios with more than a small fraction of other assets will earn less money. The only logical reason for not being 100% in stocks is because you're willing to trade off lower returns for less up and down movement, less volatility.
You can count whatever you want in your asset allocation, LLCs, houses, art collections, present value of pensions or whatever but if the result is that is what is left contains such a high percentage of stocks that you panic and sell when the market goes down, then you shouldn't have included those things. The end result of a the asset allocation process should be volatility you can live with.