Each month I’ll be keeping track of our net worth on this blog. The reason for making our net worth public is to not only hold myself accountable, but to provide a record so I can review my progress over time. I’ll be giving a brief analysis on our results for the month and discuss any changes I’m thinking of making.

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 way to provide a more stable and “true” valuation of the stock market by adjusting for overly high or low P/E ratios. 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 April, 2019 is 72%.

Here’s how the MCTWI has trended over time.

As you can see, the market’s overvaluation (where the graph is lowest) was in January, 2018. The market was closest to fair value in December, 2018, but has since trended back towards greater overvaluation.

If the market was suddenly revalued at the long-term average of 15.68x earnings rather than the current 21.15x earnings, then your stock market investments would be worth roughly 72% of what they are currently worth

The fact that over the last year the MCTWI is generally moving up towards 100% implies that the market is slowly moving towards “true value”. We are still quite a ways away, but at least things are moving in the right direction.

Without further ado, here is our net worth report for April, 2019:

Our performance for the month just trailed the S&P 500. We were up 2.2% and the S&P was up 4.1%. That’s about what I’d expect, as our large real estate and cash holdings means our net worth should be more stable than the market as a whole. We will underperform when the market is up and outperform when the market is down.

Assets

Brokerage (-0.7% Month, +10.0% YTD):

The value of our brokerage account was down $21,327.38 for the month and we are up $257,564.01 for the year. We used some cash from this account to purchase two rental properties (more details on that below). We pulled out $100k in cash to purchase the properties, and this account was only down $21k , so the actual holdings in the account were up about $79k.

I’m pretty darn happy with our performance this year, both on a percentage and an absolute basis. A 10% gain through 4 months is fantastic.

Retirement Accounts (+2.4% Month, +17.4% 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). The value of these accounts was up by a total of $19,426.02 for the month.

We continue to invest in the 401k and the value continues to slowly climb. Assuming that we continue to contribute $18k/year to the 401k and we get a 8% annual return, it looks like the 401k account will hit the $1M mark in about 5 years.

529 accounts (+6.0% Month, +29.1% YTD):

We outperformed the S&P 500, which makes sense given that these accounts are invested 100% in S&P 500 accounts plus we contribute $1,000/month.

Assuming both of our kids go to college, both accounts will be 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 (-32.6% 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.

In addition, we have a separate checking account to handle the income and expenses for our rental properties.

Not much to say here. We moved cash in and out of this account to purchase the rental properties, and we are currently just below our $50k goal.

Private investments: unchanged

We have 2 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.

I’ve heard that there might be a liquidity event for one of my private equity investments later this year. It’s nothing other than a rumor at this point, so I’m not going to adjust my valuation until it becomes real.

Stock options: unchanged

There’s been a lot of activity in this category over the last few months. My employer had a liquidity event in December and I was able to cash all of my then-outstanding vested shares. However, I had a few more shares vest in January, and I was able to exercise and sell those at the end of the month.

I still have a few unvested options, and I’ll continue to track the value of those as they vest quarterly. The next block of stock vests on April 1st.

Rental properties (+33.8% Month, +34.3% YTD):

There was a big jump in this category due to our rental purchases. The value of the two properties is $359,800, which accounts for the entire gain here (I only revalue my properties at the end of each calendar quarter).

Primary residence (+0% Month, +0% YTD):

Just like the rental properties, I adjust the value of our house at the end of each quarter.

Total Assets (+5.1% Month, +12.1% YTD):

Our assets were up by a total of $339,434.36 for the month. This is a bit less than the value of the properties. This makes sense, as there is some money “lost” during a real estate purchase (fees, taxes, closing costs, etc.)

Total assets after adjusting for MCTWI (+6.0% Month, +9.6% YTD):

This is a better indicator of our performance for the month, and it’s more or less exactly the same as the unadjusted gain.

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 (+87.4% Month, +18.4% YTD)

We pay our credit cards in full each month. The amount owed varies from month to month due to when we pay the credit card bill, what we charged that month, etc. I don’t worry too much about changes here.

Rental mortgages (+43.4% Month, +42.5% YTD)

There’s a big jump in our liabilities here due to the mortgages on the rental properties we purchased.

A random aside here – most residential loans in the US are “conforming” loans. This means the loan meets certain requirements set by the Federal Housing Finance Agency (FHFA). The includes a maximum size of the loan (in 2019 that’s $484,350 for most markets and $726,525 for high-cost markets like San Francisco, New York, etc.), loan-to-value limits, debt-to-income ratios, credit scores, etc.

A conforming loan can be purchased by Fannie Mae and Freddie Mac. This is important because most lenders don’t actually hold your mortgage. That is, Bank of America might lend you the money to buy your house, but they plan on selling that mortgage to Fannie Mae or Freddie Mac ASAP, which results in B of A getting more money to enable them to go out and fund more mortgages. Since the bank makes money (in the form of fees) on each loan, they are incentived to do as many loans as possible.

One of the FHFA restrictions for a loan to count as confirming is that the borrower can’t have more than 10 mortgages. At the beginning of April I was on 9 mortgages – our personal residence + 8 rental properties. So, to qualify for another mortgage we had to pay off one of our existing loans. I choose the one with the smallest balance (it had about $56k left on it). With that loan paid off we could turn around and get a $127k loan to purchase a new, more expensive rental property.

Primary residence mortgage (-0.2% Month, -0.6% YTD)

Although I don’t really consider our house to be an asset, I definitely consider our home loan a liability. I think it would be difficult to retire early with substantial mortgage payments hanging over our heads. We need to have this paid off before I can really consider retirement.

We are making steady progress on this, but we have a long way to go to pay this loan off completely.

Total liabilities (+20.7% Month, +20.0% YTD)

Most people would be well served by spending less time worrying about the value of their assets (especially equities, which vary wildly) and instead focus on the steady progress of paying down liabilities.

At the beginning of April we were roughly 18 months away from having our total debt under $1M, but with the purchases of the new properties we have reset the clock (I calculate that we are 8-10 years away from getting under $1M debt now).

Total net worth

Our net worth was up by $124,173.32 (a 2.2% increase) for the month. It’s pretty amazing to have our net worth increase by 6 figures in a single month for doing absolutely nothing!

Perhaps more amazing is that our net worth is up $546,149.14 for the year (10.5% increase). It’s really amazing how fast our net worth has grown now that we’ve got the snowball rolling downhill. Our investments are making a much larger contribution the increase in our net worth than my salary is.

We’ve seen solid growth in our net worth since I started tracking the number in June, 2016, with the biggest jumps in the middle of 2017 when I received my huge commission checks.

Here’s what our asset allocation looks like:

These numbers have changed slightly from last month – our equity allocation has fallen from 59% to 58%, our primary residence has dropped from 20% to 19%, and our rental allocation has increased from 10% to 12%. I’d consider these changes to be minor tweaks rather than major changes.

These numbers are reasonably close to where I’d like them to be at this point in our lives. Most of our money is in equities (stocks and mutual funds). This category has the highest expected returns as well as the highest volatility.

Our rental real estate allocation effectively takes the place of bonds in our portfolio. Real estate provides relatively steady returns and is largely uncorrelated with the stock market. We’ve recently decided to increase our allocation here, and that will be reflected in our numbers in the next month or two.

I’d prefer if the equity in our primary residence was a smaller percentage of our overall net worth (the equity in the house doesn’t do much for us). We plan to never move, which means the value of the house doesn’t matter. My hope is that over the next decade or so we’ll get this percentage down to 10%, even as we pay off our mortgage, by growing the rest of our investments. 

Conclusion

We had some minor tweaks to our net worth this month, with the purchase of 2 rental properties shifting money into our rental allocation. I don’t expect to purchase any more real estate in the near future, as we are already up to 10 mortgages and any additional mortgages would be “non-conforming” and at much higher interest rates.

I can clearly remember when my entire net worth was under $500k, and now we’ve increased our net worth by more than that in just 4 months. It really is amazing what happens once the snowball gets rolling.

I don’t expect that level of growth to continue, but I’m going to try to enjoy it while I can.

How did everybody else do this month?  What’s your asset allocation, and how does it compare to your ideal allocation?