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.
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 February, 2019 is 74%.
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 74% 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 February, 2019:
Our performance for the month trailed the S&P 500. We were up 2.6% and the S&P was up 3.2%. 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 (+2.6% Feb, +8.9 YTD):
The value of our brokerage account was up by $72,062.57 for the month.
There aren’t many other conclusions to be drawn from this performance, as the results of the underlying investments were largely clouded by the large amount of cash we put into our accounts.
Retirement Accounts (+7.3% Feb, +11.6 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 $53,312.44 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 (+8.3% Feb, +17.6% 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% Feb, +21.6% 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. The change in the balance here is due to moving some money around. We are below our desired $50k balance, but I expect us to get back up to that number in a few months.
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.
Rental properties (no change):
I revalue our real estate at the end of each quarter. No change this month.
Primary residence (no change):
Just like the rental properties, I adjust the value of our house at the end of each quarter. No change this month.
Total Assets (+2.2% Feb, +5.1% YTD):
Our assets were up by a total of $140,678.25, which makes for a pretty good month!
Total assets after adjusting for MCTWI (+1.9% Feb, +3.5% YTD):
The big rebound in January meant that the market’s valuation got worse, not better. When adjusted for valuation our net worth was down slightly.
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 (+56.9% Feb, +69.1% 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 (-0.2% Feb, -0.4% YTD)
This was a pretty standard month – we tend to pay somewhere around $1k on our rental mortgages every month, and this month we paid off $1,124.25.
Primary residence mortgage (-0.2% Feb, -0.2% 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.
We didn’t see a decrease in our mortgage in January because our January payment was applied on Dec 31st.
Total liabilities (unchanged in Feb, -0.1% 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.
We still have over $1M in debt but the number is dropping fast. At the average rate that we’ve been paying down our mortgages (about $2,250/month) we’ll be under $1M in debt in about 19.5 months. That will be a fun milestone to finally hit!
Total net worth
Our net worth was up by $141,091.32 (a 2.6% 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!
We’ve seen solid growth in our net worth since I started tracking the number in June, 2016.
Here’s what our asset allocation looks like:
These numbers are pretty close to where I’d like them to be at this point in our lives. Most of our money is in investments (stocks, mutual funds, and money markets). This category has the highest expected returns as well as the highest volatility.
Our rental real estate allocation (10%) effectively takes the place of bonds in our portfolio. Real estate provides relatively steady returns and is largely uncorrelated with the stock market.
I’d prefer if the equity in our primary residence was a smaller percentage of our overall net worth, as we hope 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
Any month you see your net worth increase by $141k is a pretty good month. We are still holding about $585k of cash in our brokerage accounts, ready to be deployed if/when an interesting opportunity comes along.
How did everybody else do this month? What’s your asset allocation, and how does it compare to your ideal allocation?