Introduction

This was a good month for our net worth as we rode the stock market higher. Without further ado, here is our net worth report for February, 2022:

Our net worth for the month was -1.3%, which was much better than the S&P’s -2.99% 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.

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 February, 2021 is 63%. This indicates that the stock market is likely overvalued.

If the market was suddenly revalued at the long-term average of 15.97x earnings rather than the current 25.29x earnings, then your stock market investments would be worth roughly 63% of what they are currently worth.

Let’s take a closer look at our assets and liabilities.

Assets

Brokerage (-3.1% Month, -1.7% YTD):

We were down a bit more than the stock market this month, but I don’t care to much about individual fluctuations.

Retirement Accounts (-0.4% Month, +0.0% 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 (to account for federal and CA state taxes).

My 401k account is comfortably above $1M, which is pretty cool. I estimate that, even with no further contributions, this account should be worth about $3M when I am able to pull money out at 59.5 years old. With regular deposits the account should be worth at least $4M+. And, depending on how things go, I would expect to hit $2M in the next 3 years.

529 accounts (-1.0% Month, -4.7% YTD):

We are contributing $500/month/child into these accounts, and given that our kids are 8 and 6, 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 (+5.9% Month, 118.4% 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% Month, +0% YTD):

We now have 6 separate private equity investments. Since there’s no way to find the current value of these investments I will continue to keep them valued at my initial investment amount unless/until we are provided information about an updated valuation.

Stock options: (+0% Month, +0% Year)

No change this month.

Rental properties (+0% Month, +0% YTD):

I update the value of our rental properties at the end of each quarter.

No update this month.

Primary residence (+0% Month, +0% YTD):

I update the value of our primary residence at the end of each quarter.

No update this month.

Total Assets (-1.2% Month, -0.4% YTD):

I hope to get something around a 1% increase in our assets each month, which would be something a bit north of 12% per year.

Our total asset numbers will look much better in March as we’ll be adding the updated values of our primary residence and rental properties.

Total assets after adjusting for MCTWI (-1.0% Month, -0.2% 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.

You’ll notice that our assets adjusted for MCTWI were slightly higher than our non-adjusted asset value. This would indicate that valuations came down a bit over the course of the month.

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 (-20.9% Month, -74.1% 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, -0.2% YTD)

We are chipping away at these mortgages, and we’ve been paying off 0.2% – 0.3% of the balance each month. The numbers here were a bit off in January due to an issue with how I was tracking the loans in Quicken – this makes it look like quarterly and year-to-date numbers are about the same.

At the rate we are paying off our mortgages we are 20+ years from retiring these loans.

Primary residence mortgage (-0.2% Month, -0.4% 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 (-0.3% Month, -1.0% YTD)

Liability reduction is much steadier and more predictable than the increase in the value of our assets. I expect that we are about 20 years away from being debt free (unless we decide to accelerate our payments for some reason).

If we could reduce our liabilities by 1% every month we’d be debt free in about 8.5 years.

Total net worth (-1.3% Month, -0.3% YTD)

We are still hanging just shy of $10M in net worth. I am very confident we will significantly exceed $10M this year due to an expected large commission check later this year.

Conclusion

Two tough months in a row but our net worth is only down $32k for the year (due mostly to a large commission check I received in January).

I expect things to be considerably better in March, as I’ll update the value of our real estate holdings and we’ll collect significant dividends from our stocks.

How did everybody else do this month?  What’s your asset allocation, and how does it compare to your ideal allocation?