Introduction

I am way, way behind on my monthly updates, so I’m going to try to catch up on all of my reports over the next week.

I track and publish our net worth each month both as a way of keeping us accountable and perhaps to inspire other along their own financial journey.

Here’s what our net worth looked like for October:

Our net worth change for the month was +4.0%, which trailed the S&P’s +7.99% 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.

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 this month is 82%. This indicates that the stock market is likely a bit overvalued.

If the market was suddenly revalued at the long-term average of 15.97x earnings rather than the current 19.38x earnings, then your stock market investments would be worth roughly 82% of what they are currently worth. The recent downturn has caused the stock market to get closer to fair value than it’s been in quite a while. In fact, this month is the second highest value for TMCTWI since I started tracking it in 2017.

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

Assets

Brokerage (+8.7% Month, +6.3% YTD):

Our stock market investments were up a bit more than the S&P 500.

Retirement Accounts (+2.7% Month, -19.7% 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 (to account for federal and CA state taxes).

I’m not sure why my retirement accounts are doing so much worse than the S&P. I’ll need to look into that a bit more.

529 accounts (-4.1% Month, -15.6% YTD):

We are contributing $500/month/child into these accounts, and given that our kids are 8 and 6, 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 (+16.3% Month, +83.3% 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.

We are finally back up to the $50k cushion that I like to keep.

Private equity: (+0% Month, +0% YTD):

We now have 6 separate private equity investments. Since there’s no way to find the current value of 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 change this month.

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

No change this month. I had some options vest, but they are currently underwater.

Rental properties (+0% Month, +8.5% YTD):

I update the value of our rental properties at the end of each quarter.

No change this month.

Primary residence (+0% Month, +4.0% YTD):

I update the value of our primary residence at the end of each quarter.

No change this month.

Total Assets (+3.6% Month, +2.2 YTD):

Solid increase in our assets, especially since none of our real estate was revalued.

Total assets after adjusting for MCTWI (+3.3% Month, +2.5% 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 (a reduction in liability) is good, while a positive number (an increase in liabilities) is bad.

Credit cards (+2.033% Month, +8.8% 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.

Big increase this month as we purchased tickets for a vacation next year.

Rental mortgages (-0.2% Month, +0.7% YTD)

We are chipping away at these mortgages, and we’ve been paying off 0.2% – 0.3% of the balance each month. The yearly total has increased because I found an accounting issue with how I was tracking one of our loans.

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

The increase in the YTD was due to an accounting issue.

Primary residence mortgage (-0.2% Month, -2.2% 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 (+0.7% Month, -0.5% YTD)

Liability reduction is much steadier and more predictable than the increase in the value of our assets. I expect that we are about 20 years away from being debt free (unless we decide to accelerate our payments for some reason).

Total net worth (+4.0% Month, +2.5% YTD)

We’ve dropped under $10M but we’re slowly climbing back up again. Hopefully we’ll cross back over for good in 2023.

Conclusion

This was a big rebound month after a rough September. Not much else to say – we continue to work, save, pay down debt, and let everything else take care of itself.

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