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 what changes I’m thinking of making.
November was another great month for The Money Commando household. Our investments performed well, our income was solid, and our rental properties performed about as well as can be expected (see our Investment Income – December, 2017 report for more details).
The net worth report below includes an adjustment for the Money Commando True Wealth Index (MCTWI). The MCTWI for December, 2017 is .60. This is a decline from November’s MCTWI of .62 (a value of 1 is fair value, values lower than 1 represent overvaluation and values higher than 1 represent undervaluation. The further from 1 the more the overvaluation or undervaluation.). This means the market became a bit more overvalued in December (the true value of the S&P is about 60% of the current value, whereas in November it was 62% of the then-current value).
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.
Without further ado, here is our net worth report for December, 2017:
S&P 500 performance for December, 2017 = .98%
Our net worth was up 4.98%, which is significantly higher than the market’s gain for the month. This is primarily due to a change how I’m tracking our net worth (which I describe below).
Our MCTWI adjusted net worth was up 5.85%.
Assets – stock market
In August of 2017 I started reporting all of my equity assets using both their actual value as well as the Money Commando True Wealth Index (MCTWI). If you’re not familiar with the concept, it’s a method I created to remove the effects of excessively high or low valuation in the stock market. The idea is to produce a net worth that is more indicative of the actual value of investments rather than changes in the stock market valuation. The MCTWI should fluctuate much less than the actual stock market and is especially resistant to the irrational exuberance or despair that occasionally influences the market.
Brokerage accounts – This is our early retirement fund and where most of our net worth is. Our investments were up by $32,220.30, which is a solid 1.3%. There were no additions to this account, so this is all due to the performance of the market and our sizable dividend income for the month (see my Investment Income – December, 2017 for more details).
Since my last report I’ve moved about $650k of cash into a CA muni bond mutual fund. This will provide tax-free income while we wait until the market is more attractively valued and we can load up on stocks. I don’t particularly like bonds as an investment.
Retirement Accounts – 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). These were up by about $2.5k for the month. Half of that was due to my 401k contributions and the other half was due to stock market performance.
These are our longest “long-term” investments, as we can’t touch them for at least 18 years (when I turn 59.5). During that time I would expect these accounts to double twice, resulting in an account balance 4x larger than it currently is. Knowing that we can’t touch this money for that long is oddly reassuring.
These accounts have a combined worth of around $700k, so I’d expect them to be worth around $2.8M in 18 years when we can access them. The plan would be to let the tax deferred accounts continue to grow for as long as possible, with the goal that we wouldn’t pull money out until RMD (Required Minimum Distributions) when I’m 70.5 years old. The hope is that we’d never need to touch the Roth accounts and we’ll pass that money on to our children. Under current tax law that money would be tax-free, but who knows what the tax law will look like in 40 or 50 years.
529 accounts – We contribute $500/month to 529 savings accounts we’ve set up for our 2 kids. The value of these accounts was up by around $2k, so about half of the increase was due to our contributions.
Total stock market assets: The total unadjusted value of our stock market investments at the end of the month was $3,166,319.90. That was about $37k higher than last month and good for 1.2% increase.
Total stock market assets adjusted for MCTWI: After adjusting for the market’s high valuation, our stock market assets are worth $2,189,098.81. As described in my introduction to the concept of the MCTWI, in times of high valuation (like today) your stock market investments are actually worth less than their current price. In this case, the math shows that a diversified portfolio of stocks or an index fund is actually worth about 60% of the current price. You should expect that, over time, your portfolio will eventually converge on the MCTWI calculation of the value of your investments.
Assets – Other
Checking – It looks like we’ve had a huge increase in our checking account, but this isn’t really true. We’ve been doing some home improvement projects and I’ve been subtracting from our checking account the amount of money necessary to complete the projects.
However, I’ve grown tired of doing the math each month. I have to figure out how much of the project has been done, subtract from the original estimate, then tweak the numbers depending on if I feel we are ahead of schedule or behind schedule in any particular area.
To keep things simple I’m just going to be showing the actual balance in our checking account each month. This is both more accurate and saves me time.
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. This is roughly 6 months of expenses.
Private investments – 2 separate equity investments in startups. 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. No change this month.
Rental properties – On the last day of each quarter I adjust the value of the properties based on Zillow’s estimate. I was surprised to see that the total value of our rental properties was down in Q4. It wasn’t a significant amount (1.1%), but it’s still a bit surprising given that real estate values are typically much more stable than other investments.
Primary residence – Just like the rental properties, I adjust the value of our house at the end of each quarter. I’m not sure what’s going on in our neighborhood, but apparently Zillow believes that our house’s value has gone up by $130k in the last 3 months. That seems…unlikely. However, it’s easiest for me to just remain consistent with the data sources I’m using (in this case, Zillow for property values).
Total Assets – Other – This category accounted for the bulk of the change in our net worth, due to the inclusion of our full checking account balance and a large increase in the estimated value of our house.
Credit cards – 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 – All properties are currently rented, which means our tenants paid down $1,009.89 of the balances on the mortgages for our rental properties. Thanks guys!
Primary residence mortgage – We paid $1,105.34 on our mortgage this month. 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.
Total liabilities – Total liabilities were down by $3,362.29 for the month (a 0.31% decrease) to $1,082,634.67. For some reason paying down the mortgages on our rental properties feels like free money. I think it’s because when I do the mental accounting on how much money we are making on the rentals I just compare cash costs (rent – mortgages – taxes – insurance – repairs) and I don’t consider increases in property values, paying down mortgage balances, etc. When I see the property value increase and the mortgage size decrease…well, it feels like free money.
We still have over $1M in debt. At the current rate of paying down our mortgages (about $2,200/month) we’ll be under $1M in debt in about 39 months. That will be a fun milestone to finally hit!
Total net worth
As described above, I’m calculating my net worth both with and without adjusting for the Money Commando True Wealth Index.
Current net worth is $5,047,455.93, which was up $239,506.94 from last month (a 4.98% increase). Given that most of that increase was due to an increase in the estimated value of our primary residence (which doesn’t really matter since we hope to never move) and including our actual checking account balance, this doesn’t seem like a “real” increase in net worth. Nevertheless, it’s exciting to see the number cross $5M for the first time!
The more accurate MCTWI total net worth is $4,070,234.84, which was up $224,886.07 from last month. This is the number I tend to concentrate on, as I feel it better represents our true net worth.
Here’s a graph of our net worth per month so you can see the year over year comparison.
We did, in fact, hit our goal of $5M in net worth by the end of 2017, but we’ll dip back below that number early in the year as we continue to pay for the house projects.
Looking back at 2017 I just have one thought – FUCK YEAH. It was a great year for us on a variety of fronts, but especially financially. We started the year with net worth around $3.4M and we ended at almost exactly $5M. I doubt we’ll ever see that kind of increase in our net worth in one year again.
How did everybody else do this month? Have you been riding the stock market to hit new net worth numbers each month? Where are you putting your money to work today?