Introduction
I’m way, way, WAY behind on my monthly updates, so I’m going to be rolling out an update a day for the next few days until I’m all caught up.
This was another good month for our net worth. Our stock market positions were down, but we revalue our real estate at the end of each quarter and that resulted in an overall increase in our net worth for the month.
Our net worth for the month was up 0.3%, which soundly beat the S&P’s (-4.65)% 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. This month is a great example of exact that.
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 September, 2021 is 56%. This indicates that the stock market is likely substantially overvalued.
If the market was suddenly revalued at the long-term average of 15.95x earnings rather than the current 28.3x earnings, then your stock market investments would be worth roughly 56% of what they are currently worth.
Let’s take a closer look at our assets and liabilities.
Assets
Brokerage (-4.0% Month, +7.5% YTD):
Our investments were down a bit less than the S&P was, but the difference was minimal.
Retirement Accounts (-0.4% Month, +32.5% 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 (once you include state and federal taxes).
We did a bit better than the S&P, due entirely to this month’s contributions.
529 accounts (+1.1% Month, +31.4% YTD):
We are contributing $500/month/child into these accounts, and given that our kids are 7 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 (-2.9% Month, +33.7% 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 equity: (+0.7% Month, +63.9% YTD):
We now have 6 separate private equity investments. We’ve been keeping these valued at the initial investment, but a few of our investments have had more recent funding at a higher valuation then we originally invested at. As a result, I think we’ll start revaluing these investments every 6 months. I’ll do the next revaluation at the end of December.
The increase this month was due to a small capital call from the venture capital fund we are in.
Stock options: (+0% Month, +9.6% Year)
No change this month.
The next block of options will vest on October 1, 2021 and should be worth $6,125.
Rental properties (+2.4% Month, +18.5% YTD):
I update the value of our rental properties at the end of each quarter.
Solid increase this quarter, continuing the trend that’s been going all year.
Primary residence (+6.7% Month, +31.3% YTD):
I update the value of our primary residence at the end of each quarter.
A big jump here due to some recent sales in our neighborhood. Having our house jump $577k in 9 months is pretty crazy.
Total Assets (+0.3% Month, +19.7% YTD):
Stocks were down, real estate was up and we eked out a small gain. Having our asset increase in value by almost 20% through the first 9 months of the year is incredible.
Total assets after adjusting for MCTWI (+1.3% Month, 21.7% 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 (reduction in liability) is good, while a positive number (and increase in liabilities) is bad.
Credit cards (+198.3% Month, +263.7% 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.
Our costs jumped this month because we made the final payments on our 10 year anniversary trip to Tahiti.
Rental mortgages (-0.3% Month, -2.1% YTD)
We are chipping away at these mortgages, and we’ve been paying off 0.2% – 0.3% of the balance each month. The payment looked a bit less this month just because of the timing of some of the payments.
At the rate we are paying off our mortgages we are 20+ years from retiring these loans.
Primary residence mortgage (-0.2% Month, -1.6% 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 (+0.8% Month, -0.8% YTD)
Our total liabilities ticked up slightly this month due to our credit card balance, but our liabilities are still down for the year.
We have under $1.2M in liabilities and the number is slowly but steadily dropping every month.
Total net worth (+0.3% Month, +23.1% YTD)
The first 9 months of 2021 have been great. At this rate I think it’s reasonable that we could hit $10M in net worth by the end of the year.
Surprisingly, when you adjust for the MCTWI our performance for the year is even better.
Conclusion
Nothing major to report this month. This was a solid but unspectacular month.
How did everybody else do this month? What’s your asset allocation, and how does it compare to your ideal allocation?