Introduction
I track and publish our net worth each month both as a way of keeping us accountable and perhaps to inspire other along their own financial journey.
Here’s what our net worth looked like for August:
Our net worth change for the month was -1.7%, which outperformed the S&P’s -4.08% 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.
My net worth report above includes an adjustment for the Money Commando True Wealth Index (MCTWI). The MCTWI for August, 2022 is 76%. This indicates that the stock market is likely a bit overvalued.
If the market was suddenly revalued at the long-term average of 15.97x earnings rather than the current 21.01x earnings, then your stock market investments would be worth roughly 76% of what they are currently worth. The recent downturn has caused the stock market to get closer to fair value than it’s been in quite a while
Let’s take a closer look at our assets and liabilities.
Assets
Brokerage (-2.0% Month, +8.1% YTD):
I expect our equity investments to be less volatile than the market, as we primarily buy blue-chip dividend paying stocks. Our investments were down about half as much as the market was this month.
Retirement Accounts (-4.9% Month, -20.4% 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), 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 ~40% discount (to account for federal and CA state taxes).
We are roughly tracking the S&P 500, which makes sense, because these accounts are primarily invested in the S&P 500. These accounts are down $300k for the year. Rough.
529 accounts (-6.3% Month, -12.1% YTD):
We are contributing $500/month/child into these accounts, and given that our kids are 8 and 6, 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.
Because of our monthly contributions I expect that we’ll outperform the market each month and year.
Checking (-57.3% Month, +18.4% 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.
Private equity: (+0% Month, +0% YTD):
We now have 6 separate private equity investments. Since there’s no way to find the current value of these investments I will continue to keep them valued at my initial investment amount unless/until we are provided information about an updated valuation.
No change this month.
Stock options: (+0% Month, +0% Year)
No change this month.
Rental properties (+0% Month, +13.5% YTD):
I update the value of our rental properties at the end of each quarter.
No change this month.
Primary residence (+0% Month, +19.6% YTD):
I update the value of our primary residence at the end of each quarter.
No change this month.
Total Assets (-1.7% Month, +7.3% YTD):
I hope to get something around a 1% increase in our assets each month, which would be something a bit north of 12% per year. We are up by 7% through the first 8 months of the year, so we are looking pretty good right now.
Total assets after adjusting for MCTWI (-1.6% Month, +8.3% 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.
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 (-89.6% Month, -70.0% 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, -1.1% YTD)
We are chipping away at these mortgages, and we’ve been paying off 0.2% – 0.3% of the balance each month. The yearly total has increased because I found an accounting issue with how I was tracking one of our loans.
At the rate we are paying off our mortgages we are 20+ years from retiring these loans.
Primary residence mortgage (-0.2% Month, -1.6% YTD)
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 (-2.4% Month, -0.7% YTD)
Liability reduction is much steadier and more predictable than the increase in the value of our assets. I expect that we are about 20 years away from being debt free (unless we decide to accelerate our payments for some reason).
Total net worth (-1.7% Month, +8.2% YTD)
Our net worth continues to hover just over $10M (although it dropped a bit this month). I’m hoping we can continue to keep our net worth up. I’m also hoping to put most of the rest of our $450k in cash to use, which will hopefully help turbocharge our performance if/when the markets turn back around.
Conclusion
This was a pretty good month – nothing exciting happened in the markets and our net worth continues to grow.
How did everybody else do this month? What’s your asset allocation, and how does it compare to your ideal allocation?