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 what changes I’m thinking of making.
October was a great month for The Money Commando household. Our investments performed well, our income was solid, and our rental properties performed about as well as can be expected (see our Investment Income – October, 2017 report for more details).
The net worth report below includes an adjustment for the Money Commando True Wealth Index (MCTWI). The MCTWI for October, 2017 is .61.
The MCTWI is a way to adjust for the currently high valuation of the stock market. The MCTWI should result in a more stable estimate of the value of stock market investments. You can read more about the MCTWI here.
Without further ado, here is our net worth report for October, 2017:
S&P 500 performance for October, 2017 = 2.22%
Our “regular” net worth was up 1.16%, which is significantly lower than the market’s gain of 2.22% for the month. This isn’t too surprising – due to our real estate and cash holding I would expect us to slightly underperform the market when it’s up but outperform the market when it’s down.
Our MCTWI adjusted net worth was up .87%.
Assets – stock market
In August of 2017 I started reporting all of my equity assets using both their actual value as well as the Money Commando True Wealth Index (MCTWI). If you’re not familiar with the concept, it’s a method I created to remove the effects of excessively high or low valuation in the stock market. The idea is to produce a net worth that is more indicative of the actual value of investments rather than changes in the stock market valuation.
Brokerage accounts – This is our early retirement fund and where most of our net worth is. Our investments were up by $36,117.29, which is a solid 1.6%. There were no additions to this account, so this is all due to the performance of the market. We are holding about 30% cash and 70% stocks in our brokerage accounts, so I’d expect our performance in these accounts to be about 70% of what the overall market does. The market was up 2.2%, and 70% of that is 1.54%, so we are just about on target here.
Retirement Accounts – 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). These were up by just over $16k for the month. $1,250 of that was due to my 401k contributions and the remaining $15k was due to stock market performance.
These are our longest “long-term” investments, as we can’t touch them for 18 years (when I turn 59.5). During that time I would expect these accounts to double twice, resulting in an account balance 4x larger than it currently is. Knowing that we can’t touch this money for that long is oddly reassuring.
529 accounts – We contribute $500/month to 529 savings accounts we’ve set up for our 2 kids. The value of these accounts was up by around $1,200, so almost all of the increase was due to our contributions.
Total stock market assets: The total unadjusted value of our stock market investments at the end of the month was $3,081,222.71. That was about $54k higher than last month and good for 1.8% increase.
Total stock market assets adjusted for MCTWI: After adjusting for the market’s high valuation, our stock market assets are worth $2,229.765.63. As described in my introduction to the concept of the MCTWI, in times of high valuation (like today) your stock market investments are actually worth less than their current price. In this case, the math shows that a diversified portfolio of stocks or index fund is actually worth about 61% of the current price.
Assets – Other
Checking – 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. This is roughly 6 months of expenses.
Not much interesting happened with this account this month, just the normal fluctuation due to the timing of when expenses are paid, etc.
Private investments – 2 separate equity investments in startups. 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. No change this month.
Rental properties – On the last day of each quarter I adjust the value of the properties based on Zillow’s estimate. No change this month.
Primary residence – Just like the rental properties, I adjust the value of our house at the end of each quarter. No change this month.
Total other assets – Total other assets were up $5,069.91 for the month (a 0.2% increase) to $2,762,680.68. The increase was due entirely to the change in our checking account.
Liabilities
Credit cards – We pay our credit cards in full each month. We had a credit last month (I accidentally made 2 payments a month ago) and we are back to having a balance. As with our checking account, this balance fluctuates from month to month due to timing of purchases.
Rental mortgages – All properties are currently rented, which means our tenants paid down $866.86 of the balances on the mortgages for our rental properties. Thanks guys!
Primary residence mortgages – We paid $1,099.48 on our primary mortgage this month. 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.
Total liabilities – Total liabilities were up by $4,268.81 for the month (a 0.39% increase) to $1,087,506.23. This increase was due to a large amount of spending on our credit cards (mostly for some business purchases that will be reimbursed).
It’s crazy to think that we have over $1M in debt! My goal is to have this debt gone by the time I retire.
Total net worth
As described above, I’m calculating my net worth both with and without adjusting for the Money Commando True Wealth Index.
Current net worth is $4,756,397.16, which was up $54,595.24 from last month (1.16% increase). That would be a solid $655k/year if annualized.
The more accurate MCTWI total net worth is $3,904,940.08, which was up $33,596.28 from last month (a 0.87% decrease).
Here’s a graph of our net worth per month so you can see the year over year comparison.
We continue to close in on the $5M mark. It’s possible but unlikely we will hit that number this year. However, I’m pretty confident we’ll cross $5M in net worth next year!
How did everybody else do this month? Have you been riding the stock market to hit new net worth numbers each month? Where are you putting your money to work today?
Nice month!
I don’t think over $1M in debt is crazy when you have $5M in assets! It’s fairly conservative, especially when half of the debt is producing positive cash flow.
I have 0 debt and keep thinking about getting more leveraged.
I think that the top of a market cycle is a great time to reduce leverage and the bottom of a market cycle is a great time to increase leverage. I think we are much closer to a top than a bottom. As a result, I’m actively working to reduce debt/leverage right now.
And I think you’re right – $1M in debt against $6M in assets is fairly conservative. But any debt introduces some amount of risk.
Could not agree more. Busy paying off real estate debt because it’s likely the highest yielding option today, given how overvalued all asset markets are. Debt payoff is a good, no risk return right now. I’m older, so insulating the real estate income from leverage risk is also a high priority.
Not sure we will be able to lever up in the next down cycle, so hoarding cash is not a bad option either. It was helpful to have a lot of cash around to buy distressed assets in 2009-2012.
Absolutely – building a big cash horde is much smarter than hoping to be able to lever up during the next downturn. After all, it’s at the bottom of the market cycle that loans are hardest to get and lenders are afraid to lend.
If you have your own cash you’ll be able to aggressively purchase assets when deals present themselves.