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.
August was a great month for us. It started with Fiesta – one of the best weeks in Santa Barbara. If you live in Southern California and have never been to Fiesta in Santa Barbara you are really missing out. Fiesta (also known as Old Spanish Days) is a 5-day long party that ends on the first weekend in August. The festivities kick off with an opening ceremony on the Wednesday that features traditional Mexican/Spanish dancing and continues with an enormous equestrian parade on Friday, a children’s parade on Saturday, and culminates with everybody enjoying themselves throughout the downtown area.
After that we headed to Kauai, Hawaii for a week of vacation, and we had a GREAT time. My mother-in-law used her timeshare points to get a 2-bedroom condo at a nice resort on the beach. My daughter and mother-in-law stayed in one room and we put our son’s crib in the room with me and my wife.
We spent our time playing at the beach, going on hikes, getting shave ice, exploring Waimea Canyon, and eating as much poke and loco moco as possible. The weather was a bit windy and rainy for the first few days, but after that it was just beautiful. I absolutely understand why people want to retire to Hawaii. Other than the expense, it’s a fantastic place to live.
On the financial side, our net worth was up solidly for August. The net worth report below includes an adjustment for the Money Commando True Wealth Index (MCTWI). The MCTWI for August, 2018 is .64. This is unchanged from August’s value of .64.
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 on how the MCTWI works, a value of 1 is fair value, values lower than 1 represent overvaluation and values higher than 1 represent undervaluation. The further from 1 the more the overvaluation or undervaluation. By my estimates, the market continues to be significantly overvalued.
To calculate the “true” value of your investments (that is, what their price would be at the stock market’s long-term average valuation) you just multiply the value of your investments by the MCTWI. So if your total portfolio of domestic stocks is worth $100k at today’s valuation, the MCTWI adjusted valued is $100,000 * .64 = $64,000. This is the number you should use for planning purposes.
Without further ado, here is our net worth report for August, 2018:
Long-time readers will notice that I’ve changed the format slightly – I’m now including the numbers as of the end of 2016 and 2017. This is mostly for my own benefit, as it’s helpful for me to see how much things have improved in just under 2 years. Seeing visible progress helps keep me motivated to continue saving and investing.
Our net worth underperformed the S&P 500 in August – we were up 0.9% while the S&P 500 was up 3.0%. This is what I would expect when the market is up. Our real estate portfolio should provide ballast for our total net worth, and I’d expect us to underperform when the market is up and outperform (possibly by a lot) when the market is down.
Assets – stock market
In August of 2017 I started reporting all of our equity assets using both the actual value as well as the value given by the Money Commando True Wealth Index (MCTWI). The MCTWI should fluctuate much less than the actual stock market and is especially resistant to the irrational exuberance or despair that occasionally influences the market.
Brokerage – Investments – This is our early retirement fund and where most of our net worth is. This account was up 2.0% over last month- it underperformed the S&P 500 due to our large cash allocation (approximately $600k). These accounts were up a total of $51,285.67.
Retirement Accounts – 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). These accounts were up 4.4%, resulting in a gain of $35,553.86.
529 accounts – We contribute $500/month to each of the 529 savings accounts we’ve set up for our 2 kids. As a result, these accounts should outperform the S&P every 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. These accounts were up by 5.8% in August. This is due to the combination of contributions and market performance.
Checking – 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 made the final payment on our house renovations in August, so this account should stabilize in September. Once I have a sense of our monthly expenses I’ll move the excess money from our checking into our investment accounts.
Private investments – 2 separate equity investments in startups. Since there’s no way to value these investments I will continue to keep them valued at my initial investment amount. Hopefully I’ll one day be pleasantly surprised to see that the companies are worth something. No change this month.
Rental properties – I update the value of these properties in the last month of each quarter. No update this month.
Primary residence – Just like the rental properties, I adjust the value of our house at the end of each quarter. No update this month.
Total Assets – It’s pretty great when your net worth grows by $40,000 in a month without you needing to contribute any new capital.
Liabilities
Credit cards – 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 – All properties are currently rented, which means our tenants helped us pay down the mortgages this month. We made some additional payments to principal this month, resulting in a reduction of $4,072.55 in our mortgage balances.
Primary residence mortgage – We paid $1,134.41 on our mortgage this month. 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.
Total liabilities – Total liabilities were down by $8,138.81 for the month.
We still have over $1M in debt but the number is dropping fast. At the average rate that we’ve been paying down mortgages over the last few months (about $2,200/month) we’ll be under $1M in debt in about 22 months. That will be a fun milestone to finally hit!
Total net worth
Our net worth was up by $48,240.03 (a 0.9% increase) over last year. This is a very solid 13% increase over August, 2017. I’d be awfully happy if we could get a 13% increase in our net worth every year!
Here’s a graph of our monthly net worth so you can see the year over year comparison.
Now that we have 3 years worth of data you can see how much our net worth jumped since 2016. This was due to the combination of a surging stock market and the large commission I earned in 2017. Unfortunately, there has been very little change since December. This is because any gains from the market have been offset by the cost of our house remodel. Now that the work is done I expect to see our net worth start climbing again through the end of the year.
How did everybody else do this month? Have you been riding the stock market to new highs each month?