(I’m running a bit behind on my monthly updates, so please bear with me as I get caught up over the next few days.)
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 54%. This is unchanged from August.
If the market was suddenly revalued at the long-term average of 15.82x earnings rather than the current 29.27x earnings, then your stock market investments would be worth roughly 54% 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 September, 2020:
Our net worth for the month was up 1.8%, which strongly outperformed the S&P’s return of -3.8%. 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.
This month, our outperformance was due to the quarterly reevaluation of the value of our house and rental properties.
Let’s take a closer look at our assets and liabilities.
Assets
Brokerage (-3.1% Month, -0.2% YTD):
Our equity investments outperformed the S&P 500 by about 0.7%. 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 (+7.5% Month, +7.7% 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 ~30% discount.
Our outperformance is due to two reasons:
– we made some large contributions to my 401k this month
– our international investments did well compared to the S&P 500
529 accounts (-2.4% Month, +20.7% YTD):
We are contributing $500/month/child into these accounts, and given that our kids are 6 and 4, 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 (+12.5% Month, +188.0% 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.
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.
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: (+0% Month, +69.2% Year)
These options vest quarterly and a new block of stock vested on July 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 (this block was worth $6,125 and the previous 4 blocks were worth $11,375 each.
The next block of options will vest on Oct 1, 2020.
Rental properties (+3.3% Month, +7.9% YTD):
We update the value of our rental properties at the end of each quarter.
Solid increase in our property values this month. This always feels like “free money” to me, as I primarily invest in rental properties for income, so any increase in property values is gravy.
Looks like we are up about $113k since the beginning of the year, which is really solid performance.
Primary residence (+4.9% Month, +9.9% YTD):
We update the value of our primary residence at the end of each quarter.
Our house appreciated by about $85k this month, which is nice, but doesn’t actually matter all that much since we hope to live here forever. That said, it’s always better to see the value go up than down.
Total Assets (+1.4% Month, +5.6% YTD):
Our assets are up about $420k in 2020 and we are on the verge of having our total assets exceed $8M for the first time. Sweet!
Total assets after adjusting for MCTWI (+2.1% Month, +6.8% YTD):
This is a better indicator of our performance, as it backs out the effect of changes in stock market valuation. This number is just under $6M, which is obviously fantastic.
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 (-64.1% Month, -76.1% 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 (-0.2% Month, -2.3% YTD)
We are chipping away at these mortgages, and we’ve been paying off about 0.2% 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)
Our loan has been sold, and during the transfer I can’t access our account. We did make a payment, but my mortgage lender doesn’t provide paper statements, so I don’t have the updated balance.
Total liabilities (-0.3% Month, -2.2% YTD)
Solid performance here – our liabilities were reduced by about $3,700 for the month. Looks like we are a month or two away from seeing our liabilities drop below $1.2M
Total net worth (+1.8% Month, +7.1% YTD)
This is probably the single most important metric on the report. Ultimately it’s all about increasing net worth and this month was great on that front.
It’s really crazy to think that we ended up $116,602 richer over the course of the 30 days of September. That means that we got about $3,886.73 richer per day during the month. That’s kind of mind-blowing for me.
Conclusion
Nothing too exciting this month – just watching our investments slowly increase in value.
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?
Thanks for sharing and congratulations on all the progress/success. I live in SF Bay area and after the huge run up in property values, we sold all our SF rental properties due to overvaluation vs. declining quality of life / potential for outmigration concerns in 2018. Needless to say, I am very happy to have exited back in 2018 before Covid. However, since then I have been sitting on a pile of cash looking to invest in out of state and even international properties. After investigating crowdsourcing options, I decided not to go down that path due to concerns about deal quality, viability, unproven ability to navigate successfully through the entire real estate cycle, etc. I had been looking at nursing home funds and some multifamily PE funds but spooked by Covid on this. So, back to SFH primary real estate investing outside of CA. How did you get comfortable with the remote rental property model?
You really dodged a bullet by selling in 2018. I keep reading that housing prices and rents are plummeting in the SF Bay Area, as tech workers are leaving in droves for higher quality of life and lower cost housing.
I did a substantial amount of research before getting comfortable with remote rental property. The key for me was getting an independent inspector (never use the one recommended by the person selling the house). This gives me the confidence that an independent professional has looked at the property.