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.
September was another good month and our net worth was solidly higher. The net worth report below includes an adjustment for the Money Commando True Wealth Index (MCTWI). The MCTWI for September, 2018 is 67%. This is up quite a bit from last month’s 64%.
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 currently valued at the long-term average of 15.68x earning rather than the current 23.44x earning, then your stock market investments would be worth roughly 67% of what they are currently worth.
Without further ado, here is our net worth report for September, 2018:
Long-time readers will notice that I’ve changed the format slightly – I’m now including the numbers as of the end of 2016 and 2017. This is mostly for my own benefit, as it’s helpful for me to see how much things have improved in just under 2 years. Seeing visible progress helps keep me motivated to continue saving and investing.
Our performance for the month crushed the S&P 500 – we were up 1.7% and the S&P was up .57% for the month. This is largely due to the revaluing of our real estate (which I do quarterly – see below for more details).
Assets
Brokerage: +$22,645.76 (0.9%)
– This is our early retirement fund and where most of our net worth is. This account was up 0.9% over last month. The fact that we outperformed the S&P is especially suprising because we have a large (approximately $600k) cash allocation. We didn’t make any new investments, so this is all organic growth inside our portfolio.
Retirement Accounts: +$20,391.10 (2.5%)
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). I know that our outperformance in these accounts was due largely to the fact that the mutual funds we hold in these accounts pay dividends quarterly in the last month of the quarter, so we received all of our dividends at once.
529 accounts: +$1,071.07 (2.5%)
We contribute $500/month to each of the 529 savings accounts we’ve set up for our 2 kids. As a result, these accounts should outperform the S&P every 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: +$20,445.10 (20.7%)
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.
Now that the work on our house is done (with only some landscaping work remaining), we should see these accounts start rising again.
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.
Rental properties: +$29,468.50 (2.8%)
I revalue our real estate at the end of each quarter. Our rental properties were up almost $30k for the quarter. That’s atypically high, but I’m not going to complain! The best part is that the properties are cash flow positive, so the rent more than covers the mortgage, taxes, insurance, and all other expenses. Having the property values increase is just an added bonus.
Primary residence: -$3,976 (-.2%)
Just like the rental properties, I adjust the value of our house at the end of each quarter. Zillow says that the value of our house was down slightly this quarter, but the amount is so small that it’s really just noise.
Total Assets: +$90,045.53 (1.4%)
It’s pretty great when your net worth grows by $90,000 in a month! Of that increase, only about $2,000 was from invested capital.
Liabilities
Credit cards: +$2,813.19 (73.4%)
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.
Rental mortgages: -$459.41 (-.1%)
A few of our September mortgage payments were actually made at the end of August, which makes our performance this month seem much worse. The main point is that we continue to pay down the mortgages each and every month, with the goal of being mortgage-free by the time I decide to retire.
Primary residence mortgage: -$1,140.01 (-.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.
Total liabilities: +1,213.77 (.1%)
It’s never a good thing when your liabilities are increasing rather than decreasing, but this month was affected by the timing of a few payments. I expect that October will look much better.
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 $2,200/month) we’ll be under $1M in debt in about 21 months. That will be a fun milestone to finally hit!
Total net worth
Our net worth was up by $88,831.876 (a 1.7% increase) over last year. This is a very solid 14% increase over September, 2017. I’d be awfully happy if we could get a 14% increase in our net worth every year!
Here’s a graph of our monthly net worth so you can see the year over year comparison (thanks to Joe for pointing out that I had the vertical axis of my graph set incorrectly!):
Now that we have 3 years worth of data you can see how much our net worth jumped since 2016. This was due to the combination of a surging stock market and the large commissions I earned in 2017. Unfortunately, our net worth is only up by 5.7% in 2018. This is because most of the gains from the market have been offset by the cost of our house remodel. Now that the work is done I expect to see our net worth start climbing again through the end of the year.
How did everybody else do this month? Have you been riding the stock market to new highs each month?
What are your recommendations for index funds or stocks for the 529?
My daughter was born this year in July and can’t decide where to allocate her 529.
It depends on what state you’re in. If you’re in a state that has tax deductions for contributions for in-state plans, then you should definitely go that route. Otherwise, you can use the plan from any state you want.
I tend to believe you should be a bit more conservative with 529 plans, as there’s a definite date by which you need the money. This is different than retirement funds, where you might WANT to retire at 63 years old, but if the market is taking a beating when you turn 63 you can just delay retirement for a year or two.
For a newborn I’d probably start with an 80/20 allocation of stocks/bonds. For the stocks just go with an S&P500 or a Wilshire 5000 index fund (which captures the entire market). For the bond I’d pick a short-term bond fund with the most diversification possible.
Thank you for the quick reply and recommendation. We will stick with the 80/20 allocation of S&P 500 and a short-term bond fund since there is no tax deduction in FL.
Is it wise to have a property down payment in the Vanguard Total Stock Market Index Fund Admiral Shares index fund and pay taxes on the sell of the shares later or should we keep the down payment in a conservative high interest bearing savings account?
Also, after the sale of $30K shares would the taxes owed be a substantial amount if the shares were sold for an amount close to what we initially bought the stock for?
I am ready to purchase an investment property that meets the 1% rule but have not come across the right one yet. I bought shares of VTSAX at $73/share with the property down payment ($30K) in a brokerage account and in the 12% tax bracket for 2018.
I don’t have enough information to about the details of your situation to offer specific advice, but can certainly give you some general advice.
First, you should only put money into the stock market that you don’t expect to need for 7-10 years. The market is generally up over that period of time, but in less periods of time anything can happen. If you’re hoping to buy a house soon I would not put the money into the stock market.
As for taxes – you only pay taxes on your gains. So if you bought your VTSAX at $70/share and you sold it at $73/share you’d pay taxes on $3/share. If you had 100 shares that would be a total of $300 that you’d pay taxes on. Capital gains are taxed based on your tax bracket, but for most people the capital gains are 15%. In this case you’d pay 15% capital gains on $300 in profit, or $45 of total taxes.