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 July, 2021:
Our net worth for the month was up 0.9%, which crushed the S&P’s 2.38% 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. However, on the last month of the quarter we also update the value of our rental properties and primary residence.
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 July, 2021 is 46%. This indicates that the stock market is likely substantially overvalued.
If the market was suddenly revalued at the long-term average of 15.94x earnings rather than the current 34.6x earnings, then your stock market investments would be worth roughly 46% of what they are currently worth.
I think this point bears repeating – the US stock market appears to be extremely overvalued based on PE ratios, and the stock market’s valuation is more than double its normal, long-term valuation.
Let’s take a closer look at our assets and liabilities.
Assets
Brokerage (+1.7% Month, +10.2% YTD):
Our brokerage accounts did well this month, although our performance trailed the S&P’s return.
Retirement Accounts (+0.6% Month, +20.6% 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), 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+.
529 accounts (+3.2% Month, +25.5% 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 (+0.5% Month, +24.3% 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 investments: (+0.0% Month, +62.7% 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.
Stock options: (+0% Month, +9.6% Year)
No change this month.
The next block of options will vest on August 1, 2021 and should be worth $6,125.
Rental properties (+0% Month, +15.8% YTD):
I update the value of our rental properties at the end of each quarter. No update this month.
Primary residence (+0% Month, +23.0% YTD):
I update the value of our primary residence at the end of each quarter. No update this month.
Total Assets (+0.8% Month, +17.0% YTD):
Our assets increased in value by almost $76,000 this month.
Total assets after adjusting for MCTWI (+0.5% Month, +18.7% 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 (-0.9% Month, -32.5% 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 (-0.3% Month, -1.6% YTD)
We are chipping away at these mortgages, and we’ve been paying off 0.2% – 0.3% of the balance each month. The payment looked a bit less this month just because of the timing of some of the payments.
At the rate we are paying off our mortgages we are 20+ years from retiring these loans.
Primary residence mortgage (-0.4% Month, -1.5% 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 (-0.3% Month, -1.6% YTD)
We now have under $1.2M in liabilities, and we could possibly be under $1.15 by the end of the year.
Total net worth (+0.9% Month, +20.0% YTD)
The first 7 months of 2021 have been insane. At this rate, our net worth would be up by almost 34.3% for the year, which would put us just under $10M in total net worth.
Surprisingly, when you adjust for the MCTWI our performance for the year is even better.
Conclusion
Nothing major to report this month. This was a solid but unspectacular month.
How did everybody else do this month? What’s your asset allocation, and how does it compare to your ideal allocation?
Great progress, do you have a target number where you would just stop working and coast on your investments? You are well beyond where I would just “hang it up”.
That’s a good question. I have some metrics in mind – I’d like to have $10M in net worth and passive income of at least $120,000/year.
If I was a bachelor I’d have definitely retired by now. But I have 2 kids (age 7 and 5) and there are a lot of financial unknowns with them (college costs, etc.) In addition, I don’t like the idea of retiring when the market is at an all-time high, since I don’t feel like my investments are really worth their current inflated values.