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.
November was a rough month and our net worth was lower than the previous month. The net worth report below includes an adjustment for the Money Commando True Wealth Index (MCTWI). The MCTWI for November, 2018 is 72%. This is up slightly from last month’s 71%.
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. If the market was suddenly revalued at the long-term average of 15.68x earnings rather than the current 21.64x earnings, then your stock market investments would be worth roughly 71% of what they are currently worth.
The fact that over the last few months the MCTWI is 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 November, 2018:
Our performance for the month trailed the S&P 500 – we were down .5% and the S&P was up 2.04% for the month. This is because we bought a new car (details below).
Assets
Brokerage (-0.4%):
It turns out that our performance for the month wasn’t actually as bad at the numbers make it look. We bought a new car, which cost approximately $49,000. I pulled the money from our cash reserves in our brokerage account.
This means our actual investments were up by about 1.22%. That’s not too shabby.
It’s not often that your equity investments drop by over $100k in a single month. As mentioned above, the good news is that our investments dropped by less than the general market. This is because my investments are slightly more conservative and less overvalued than the market in general.
Retirement Accounts (+0.5%)
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 performance here was fine. We slightly underperformed the market, but not by much.
529 accounts (-3.9%):
I’m not sure why these accounts were down more than the S&P 500, as all of the money in these accounts is in the S&P. It’s especially confusing since we contribute $500/month for each of our 2 kids.
My guess is that it’s a timing thing – the contributions are made on the 15th of each 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 (-34.9%):
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.
As mentioned previously, we bought a new car this month. That used about $10k of cash from this account (the rest came from cash in our brokerage accounts). In addition, we paid the first installment of our property taxes this month.
We are just below our desired $50k balance, but I expect to be back there in December.
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. Hopefully I’ll one day be pleasantly surprised to see that the companies are worth something.
Stock options: unchanged
Although I’ve had these stock options for ~10 years, I’ve never included them in my net worth. This is largely because stock options are notoriously difficult to value (the company I work for is private). I’ve always just treated our stock options as a mini lottery ticket – we aren’t relying on the money, but if they are eventually worth something then that will be a nice surprise.
I’ll update the value of my stock options whenever the fair market value of our stock is updated. This happens every year or so.
Rental properties: unchanged
I revalue our real estate at the end of each quarter. No change this month.
Primary residence: unchanged
Just like the rental properties, I adjust the value of our house at the end of each quarter. No change this month.
Total Assets (-0.5%):
We were down a bit while the market was up. This was almost entirely due to the purchase of the new car, so I’m not too worried about it. The performance of our actual investments has been good. Our portfolio has a beta that’s below 1, meaning that we will be less volatile than the overall market.
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 (+39.0%)
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. I think the big reduction was just due to the timing of our payments.
Rental mortgages (-0.2%)
This was a pretty standard month – we tend to pay down just over $1k on our rental mortgages every month.
Primary residence mortgage (-0.2%)
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.
Total liabilities (-0.2%)
Please bear with me as I pat myself on the back: I made a comment last month that I think is more insightful than I realized at the time. I noted that although the value of our assets fluctuates wildly from month to month, our liabilities are steadily trending down every month.
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 mortgages over the last few months (about $2,000/month) we’ll be under $1M in debt in about 24 months. That will be a fun milestone to finally hit!
Total net worth
Our net worth was down by $29,668.60 (a 0.5% decrease) for the month. However, our net worth is up about 12% over November, 2017.
I’ve had a few readers ask me about our asset allocation. Here’s what ours looks like:
| Investments | $3,713,052.14 | 69% |
| Rentals | $535,670.37 | 10% |
| Primary residence | $1,087,979.75 | 20% |
| Cash | $42,144.82 | 1% |
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.
How did everybody else do this month? What’s your asset allocation, and how does it compare to your ideal allocation?
Fascinating. I love the detail you go into. Thanks for posting and sharing with all of us!
What is your recommendation for purchasing stocks based on the current S&P 500 and Dow Jones market performance?
Well, the short advice is that you shouldn’t buy based on recent performance. You should have an idea of what the “fair value” is of whatever investment you’re interested in.
The mistake a lot of people make is thinking that just because the market has corrected that it must be attractively priced. That’s not true. The market could have gone from being wildly overvalued to just somewhat overvalued.