Introduction
I’m running a bit behind on my monthly updates, so I’m posting this March update in May. The April updates will follow in just a few days.
Without further ado, here is our net worth report for March, 2021:
Our net worth for the month was up 6.5%, which outperformed the S&P’s 4.25% return. Our mix of cash, real estate, and equities means that our performance should be less volatile than the stock market – we should underperform when markets are up but outperform when markets are down.
Money Commando True Wealth Index
I track our net worth in both the “real” numbers and the Money Commando True Wealth Index (or MCTWI for short). The MCTWI is a quick and dirty way to provide a more stable and “true” valuation of the stock market by adjusting for valuation (that is, PE ratios that are higher or lower than the long-term market average).
As a reminder – the MCTWI tells you how much your stock investments would be worth assuming “normal” valuation rather than the current valuation in the market.
The net worth report below includes an adjustment for the Money Commando True Wealth Index (MCTWI). The MCTWI for March, 2021 is 38%. This indicates that the stock market is likely substantially overvalued.
If the market was suddenly revalued at the long-term average of 15.92x earnings rather than the current 41.71x earnings, then your stock market investments would be worth roughly 38% of what they are currently worth.
I think this point bears repeating – the US stock market appears to be extremely overvalued based on PE ratios, and the stock market’s valuation is more than double its normal, long-term valuation.
Let’s take a closer look at our assets and liabilities.
Assets
Brokerage (+1.9% Month, +4.8% YTD):
Our investments did a bit worse than the S&P 500 and we ended up with a solid $69k gain for the month. Our performance trailed the S&P 500 for the month, but that was largely due to the transfer of some money from our brokerage account to fund some other investments.
Retirement Accounts (+3.8% Month, +14.9% YTD)
This includes a 401(k), two IRAs, and two Roth IRAs (one of each for my wife and me). The only account we are currently contributing to is the 401(k), as we aren’t eligible to continue to the IRAs.
Of course, any withdrawals from these accounts will be taxed at our marginal income tax rate, which means we should probably be valuing these accounts at a ~30% discount.
The performance here looks better than it actually is, as this includes toy 401k contributions.
529 accounts (+6.5% Month, +11.7% YTD):
We are contributing $500/month/child into these accounts, and given that our kids are 7 and 5, we are approaching the point where we have enough money in these accounts and it will make sense to stop contributing.
Assuming both of our kids go to college, both accounts will be completely liquidated in about 20 years. Based on my calculations, these accounts should pay for 90%+ of the total 4-year cost at a state university. The remaining amounts will be paid out of our then-current cash flow.
Checking (-61.0% Month, -11.5% YTD):
Our goal is to keep about $50k in cash in our checking account. This is due to an abundance of caution. I work in an inherently unstable field (sales) and my income varies widely from month to month. Keeping a good chunk of cash in our checking account helps me sleep well at night.
We’ve been moving money around to fund private investments, and that resulted in this account being down.
Private investments: (+36.4% Month, +36.4% YTD):
We have 5 separate private equity investments. Since there’s no way to value these investments I will continue to keep them valued at my initial investment amount unless/until we are provided information about an updated valuation.
We made 2 additional venture funding investments this month. These are all high-risk, high-reward type investments. I don’t plan to make any additional VC investments at any point in the foreseeable future, as I’m happy with our current investment mix and I don’t want the additional complexity resulting from private investments.
Stock options: (+9.6% Month, +9.6% Year)
These options vest quarterly and a new block of stock vested on April 1st.
The next block of options will vest on August 1, 2021 and should be worth $6,125.
Rental properties (+8.7% Month, +8.7% YTD):
I update the value of our rental properties at the end of each quarter.
Our rental properties have been riding the insane housing market boom in the last 12 months. This is an annualized 35%, and more like a 100% annualized cash-on-cash return.
Primary residence (+10.9% Month, +10.9% YTD):
I update the value of our primary residence at the end of each quarter.
Another crazy increase, equivalent to just under a 44% annualized return. I’m not sure why the market here in Santa Barbara is going so crazy, but I’m happy to be benefitting. The reality is that we hope to live in this house forever, so the value of our house doesn’t really matter to us (but I guess it might matter to our kids).
Total Assets (+5.6% Month, +9.0% YTD):
Our assets increased in value by about $493k, most of which is due to the crazy real estate market.
Total assets after adjusting for MCTWI (+7.3% Month, +9.9% YTD):
To get this number I adjust our brokerage, retirement accounts, and 529 accounts based on the MCTWI. Our checking, private equity, stock options, rental properties, and primary residence values are NOT adjusted for the MCTWI.
Clearly we are doing very well here as well, again due largely to our real estate holdings.
Liabilities
Just a note on the numbers below – since these are liabilities, a negative number (reduction in liability) is good, while a positive number (and increase in liabilities) is bad.
Credit cards (+82.3% Month, -67.0% YTD)
We pay our balances in full each month, so the ebb and flow of our balance is more reflective of when our payment is made than anything else.
Rental mortgages (-0.2% Month, -0.5% YTD)
We are chipping away at these mortgages, and we’ve been paying off 0.2% – 0.3% of the balance each month. The payment looked a bit less this month just because of the timing of some of the payments.
At the rate we are paying off our mortgages we are 20+ years from retiring these loans.
Primary residence mortgage (-0.2% Month, -0.5% YTD)
We refinanced our mortgage in October, which lowered our payment by about $850/month. The loan promptly got sold and I couldn’t look up the balance last month. The balance on the loan is now correct.
At our insanely low interest rate I don’t see any reason to pay this off early. I expect we’ll hold this mortgage for the next 29+ years.
Total liabilities (-0.1% Month, -0.8% YTD)
We now have under $1.2M in liabilities, and we could possibly be under $1.15 by the end of the year.
Total net worth (+6.5% Month, +10.6% YTD)
Our net worth was up by a total of almost $500k for the month. It’s amazing what the combination of saving, investing, and time can do.
We are on track to grow our net worth by another $1M this year (assuming the stock market stays strong).
Conclusion
Nothing major to report this month. Our investments continue to perform as expected. My job is stable and our cash flow allows us to pay our bills and invest the extra.
How did everybody else do this month? What’s your asset allocation, and how does it compare to your ideal allocation?
Great work. Amazing to see how fast things accelerate. You should trend your MCTWI. It’s probably been high as long as you have been tracking it, so wonder if this is the new “normal”.
Also, I’m surprised your credit card balances aren’t higher for Feb/Mar 2021. Did you do more of your spending in cash or check or just not spend at all? Impressive.
We purchase most things with our debit card. We typically only use our credit cards for online purchases or anything where we feel we need additional protection. Also, we really didn’t spend too much money since California was shut down in February and March and there wasn’t a whole lot to do.