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 – November, 2017 report for more details).
The net worth report below includes an adjustment for the Money Commando True Wealth Index (MCTWI). The MCTWI for November, 2017 is .62. This is actually an improvement over October’s MCTWI of .61 (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 marginally more reasonably priced in November.
The MCTWI is a way to adjust for the currently high valuation of the stock market. The MCTWI provides in a more stable estimate of the value of stock market investments by adjusting for changes in valuation.
Without further ado, here is our net worth report for November, 2017:
S&P 500 performance for November, 2017 = 3.07%
Our net worth was up 1.08%, which is significantly lower than the market’s gain of 3.07% for the month. This isn’t too surprising – due to our real estate and cash holding I would expect us to underperform the market when it’s up but outperform the market when it’s down.
Our MCTWI adjusted net worth was up .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.
Brokerage accounts – This is our early retirement fund and where most of our net worth is. Our investments were up by $41,073, which is a solid 1.7%. There were no additions to this account, so this is all due to the performance of the market.
We continue to hold significant cash/bonds. I am eagerly looking forward to a time when the market is more attractively valued and we can load up on stocks.
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 just over $5k for the month. $1,250 of that was due to my 401k contributions and the remaining $3.75k was due to stock market performance.
These are our longest “long-term” investments, as we can’t touch them for 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 $1,700, so just over 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 $3,129,419.62. That was about $48k higher than last month and good for 1.6% increase.
Total stock market assets adjusted for MCTWI: After adjusting for the market’s high valuation, our stock market assets are worth $2,282.804.57. 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 index fund is actually worth about 62% of the current price.
Assets – Other
Checking – 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.
Not much interesting happened with this account this month, just the normal fluctuation due to the timing of when expenses are paid, etc.
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. No change this month.
Primary residence – Just like the rental properties, I adjust the value of our house at the end of each quarter. No change this month.
Total Assets – Other – Only 1 of the 4 accounts had a change to its value this month, so our total “Assets – Other” were essentially unchanged at $2.76M.
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 $910.05 of the balances on the mortgages for our rental properties. Thanks guys!
Primary residence mortgages – We paid $1,101.56 on our primary 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 $1,509.27 for the month (a 0.14% increase) to $1,085,996.97. 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 40 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 $4,807,949., which was up $51,551.84 from last month (1.08% increase). That would be a solid $618k/year if annualized.
The more accurate MCTWI total net worth is $3,961,333.95, which was up $33,249.21 from last month (a 0.85% increase).
Here’s a graph of our net worth per month so you can see the year over year comparison.
We continue to close in on the $5M mark. It’s looking pretty much impossible to hit $5M in 2017 (there’s no way we’re going to see a nearly $200k increase in one month) but it looks attainable in 2018 (assuming there’s no correction). However, it’s more likely that we WILL see a correction in 2018, in which case we might not hit $5M until 2020 or so.
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?