Introduction

Big update this month – we finally passed the $7M threshold for our net worth! Read below for more details.

Each month I publish 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 give a brief analysis on our results for the month and discuss any changes I’m thinking of making.

Without further ado, here is our net worth report for November, 2020:

Our net worth for the month was up 5.4%, which underperformed the S&P’s return of 10.95%. 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 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.

The net worth report below includes an adjustment for the Money Commando True Wealth Index (MCTWI). The MCTWI for November, 2020 is 43%. This indicates that the stock market’s is substantially overvalued.

If the market was suddenly revalued at the long-term average of 15.86x earnings rather than the current 37.3x earnings, then your stock market investments would be worth roughly 43% 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, especially when you consider the potential impact of COVID-19.

Let’s take a closer look at our assets and liabilities.

Assets

Brokerage (+11.1% Month, 8.3% YTD):

The stock market up huge this month and our investments did even better than the market at large. It’s pretty crazy that despite all the challenges of 2020 our brokerage accounts are up about $260k for the year.

Retirement Accounts (+2.0% Month, +11.2% 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 ~30% discount.

I would expect our retirement accounts to outperform the S&P 500 every month as we are making contributions every pay period to these accounts, and that’s exactly what happened here.

529 accounts (+5.6% Month, +34.5% YTD):

We are contributing $500/month/child into these accounts, and given that our kids are 6 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 (-12.9% Month, +68.9% 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.

Our checking account balance is a bit lower than I’d like, so I’ll work on getting this back up to our $50k goal.

Private investments: (+0% Month, +10% YTD):

We have 3 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.

No updates this month.

Stock options: (+0% Month, +87.2% Year)

These options vest quarterly and a new block of stock vested on October 1st.

The next block of options will vest on January 1, 2021 and should be worth $6,125.

Rental properties (+0% Month, +7.9% YTD):

We update the value of our rental properties at the end of each quarter. No update this month.

Primary residence (+4.9% Month, +9.9% YTD):

We update the value of our primary residence at the end of each quarter. No update this month.

Total Assets (+4.5% Month, +9.7% YTD):

Huge gains for the month. The values of our assets are up about $731k for the year. Incredible.

Total assets after adjusting for MCTWI (+2.7% Month, +9.9% 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 (-29.6% Month, -67.7% 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, -2.8% YTD)

We are chipping away at these mortgages, and we’ve been paying off 0.2% – 0.3% of the balance each month.

At the rate we are paying off our mortgages we are 20+ years from retiring these loans.

Primary residence mortgage (-0% Month, -1.4% YTD)

We refinanced our mortgage in October, which lowered our payment by about $850/month. The first payment on this new loan is due in December.

Total liabilities (-0.2% Month, -2.4% YTD)

We still have about $1.2M in liabilities. The hope is to have all of these paid off in 20 years or so.

Total net worth (+5.4 Month, +12.1% YTD)

This was a big month, as our net worth exceeded $7M for the first time.

We are up a solid $750,000 for the year and we’ve made minimal new investments this year (and none this month). As you can see from the graph below, although our net worth has fluctuated throughout the year, the trend has been up and to the right.

Conclusion

It’s pretty excited to cross the $7M threshold for the first time. It’s even more excited because we’ve done very little to hit this goal throughout the year. We continue to put month into our 401k and the 529 accounts for the kids, but the lion’s share of increases have been driven by increases in the value of our rental properties and the general increase in the market.

December should be a great month, as I’ll be doing our quarterly update of the value of our properties and our primary residence. In addition, December is always the best month of the year for our dividend income.

How did everybody else do this month?  What’s your asset allocation, and how does it compare to your ideal allocation?