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.
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 September, 2020 is 44%. This is down substantially from August’s value of 54%. This indicates that the stock market’s overvaluation has continued to worsen.
If the market was suddenly revalued at the long-term average of 15.86x earnings rather than the current 35.73x earnings, then your stock market investments would be worth roughly 44% 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.
Without further ado, here is our net worth report for October, 2020:
Our net worth for the month was down 0.8%, which strongly outperformed the S&P’s return of -2.7%. 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.
Let’s take a closer look at our assets and liabilities.
Assets
Brokerage (-2.3% Month, -2.5% YTD):
Our equity investments outperformed the S&P 500 by about 0.4%. That sounds about right, as our investments tend to be blue-chip companies and a bit more stable than the S&P 500 overall.
Retirement Accounts (+1.2% Month, +9.0% 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.
529 accounts (+5.5% Month, +27.3% 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 (-32.7% Month, +93.8% 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.
We used $20k from our checking account to make our initial investment in a private venture capital fund. Our total commitment is $100k, and it’s expected that we’ll be asked to make the remaining $80k investment over the course of the next 2 years.
Private investments: (+10% 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.
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: (+10.6% Month, +87.2% Year)
These options vest quarterly and a new block of stock vested on October 1st. I’m valuing my stock options at the price used for the most recent liquidity event. This block of options has a strike price substantially higher than my previous blocks of options, which means the valuation is lower (the last 3 blocks have been worth $6,125 and the previous 4 blocks were worth $11,375 each).
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 (-0.6% Month, +5.0% YTD):
Although are assets were down slightly for the months, they are still up about $375k in 2020. It’s still very possible that we could exceed $8M in assets by the end of 2020.
Total assets after adjusting for MCTWI (-0.3% Month, +6.9% YTD):
This is a better indicator of our performance, as it backs out the effect of changes in stock market valuation.
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 (+92.4% Month, -54.1% 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, -2.6% 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. Of course, that came with an increase in the term of the loan from 23 years to 30 years, but our plan is to add a few hundred dollars to the payment each month and still pay the mortgage in ~20 years.
Total liabilities (-0.1% Month, -2.3% YTD)
We still have about $1.2M in liabilities. The hope is to have all of these paid off in 20 years or so. The rental mortgages will likely be paid off in less time, as we are paying off one of the mortgages using our excess cash flow, and we’ll then use the savings from that
Total net worth (+-0.7% Month, +6.4% YTD)
This is probably the single most important metric on the report. Ultimately it’s all about increasing net worth.
We were down for the month but we are still up substantially for the year. So far, so good.
Conclusion
Nothing too exciting this month – just watching our investments slowly increase in value. The only investment we made was a small investment in a venture capital fund.
Our total net worth is about $6.7M. It’s very possible that we can hit $7M by the end of the year.
How did everybody else do this month? What’s your asset allocation, and how does it compare to your ideal allocation?
Money Commando, I love your blog! I’m confident you will hit your goal of $7 million by the end of the year! Your consistent investments have already gotten you this far.
My dad is also CFP certified and he is slowly teaching me about trusts, Estate planning, annuities, etc. Very interesting stuff. Looking forward to learning more – keep up the great work!
I find trusts to be one of the more interesting topics I learned about. If you listen to the financial media you’d think trusts were these unbelievably complex ways for rich people to never pay taxes. The truth is actually pretty straightforward – trusts are a way for the average person to simplify their estate. That’s pretty much it. And Congress has done a pretty good job of closing the various loopholes used to avoid/reduce taxes via trusts.