Introduction
This was a good month for our net worth as we rode the stock market higher. Without further ado, here is our net worth report for December, 2021:
Our net worth for the month was up 4.7%, which was slightly better than the S&P’s 4.48% 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. In this case we outperformed because I revalue our real estate holdings at the end of each quarter.
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 December, 2021 is 58%. This indicates that the stock market is likely overvalued.
If the market was suddenly revalued at the long-term average of 15.96x earnings rather than the current 27.35x earnings, then your stock market investments would be worth roughly 58% of what they are currently worth.
Let’s take a closer look at our assets and liabilities.
Assets
Brokerage (3.4% Month, +15.4% YTD):
Our brokerage accounts did a few percentage points worse than the S&P this month but we are still up 15.4% for the year. We trailed the overall return of the market because we held cash, I lost some money on some options trades, and we pulled money out of the account to fund some of our private placement investments.
Retirement Accounts (4.1% Month, +39.1% 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 (once you include state and federal taxes).
My 401k account is comfortably above $1M, which is pretty cool. I estimate that, even with no further contributions, this account should be worth about $3M when I am able to pull money out at 59.5 years old. With regular deposits the account should be worth at least $4M+. And, depending on how things go, I would expect to hit $2M in the next 3 years.
529 accounts (+0.4% Month, +41.9% 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 (-70.4% Month, -29.2% 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.
The venture capital fund we are invested in had a capital call this month and that’s where most of our cash went.
Private equity: (+12.3% Month, +84.1% YTD):
We now have 6 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.
As mentioned above, our VC fund had a $44,500 capital call in December and that money partially from cash in our checking account and partially from cash held in our brokerage accounts.
Stock options: (+0% Month, +9.6% Year)
No change this month.
Rental properties (+2.3% Month, +21.2% YTD):
I update the value of our rental properties at the end of each quarter. Our properties were up solidly this month, and a 21.2% annual increase in insane.
Primary residence (+5.4% Month, +38.4% YTD):
I update the value of our primary residence at the end of each quarter. This was another huge quarter for the value of our home adn we are up 38% for the year.
Total Assets (3.4% Month, +26.3% 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. Obviously we far exceeded those goals in December and throughout 2021.
Total assets after adjusting for MCTWI (+3.3% Month, 27.8% 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.
You’ll notice that our assets adjusted for MCTWI was slightly higher than our non-adjusted asset value. This would indicate that valuations came down a bit over the course of the year.
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 (+75.4% Month, +107.2% 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 (-11.7% Month, -5.1% YTD)
We are chipping away at these mortgages, and we’ve been paying off about 0.3% of the balance each month.
At the rate we are paying off our mortgages we are 20+ years from retiring these loans.
We did a cash-out refi on one of our properties a few months ago and used that money to pay off 2 of our existing mortgages. This lead to the large decrease in liabilities for the month.
Primary residence mortgage (-0.2% Month, -2.2% 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 (-6.6% Month, -3.4% YTD)
It’s always good to see our liabilities drop, and a 3.4% reduction throughout the year is better than expected. 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 (+4.7% Month, +31.2% YTD)
Well, we didn’t hit our goal of $10M in net worth by the end of 2021, but $9.55M is still a pretty great result. More exciting than the final number is the increase of 31.2% for the year. I have a hard time wrapping my head around that number.
Conclusion
Looking more closely at the numbers I see that our primary residence contributed the largest $$$ increase for the year, followed our brokerage accounts and 529 accounts.
Just looking at our actual investment (that is, removing our house and checking accounts) our net worth was up about $1.5M for the year. That’s just incredible. At some point in the past I traded my time for money, decided to not spend all the money but instead invest a portion into real estate and productive businesses, and those past investments made me $1.5M richer in one year.
My goal for 2022 is to hit $11M and I think there’s a very high probability we’ll hit that number.
How did everybody else do this month? What’s your asset allocation, and how does it compare to your ideal allocation?