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 January, 2021:

Our net worth for the month was up 1.0%, which was much better than the S&P’s -5.17% 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. In this case we outperformed because I got a large commission check in January, part of which went to top off our checking account and part of which went to our brokerage account.

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 January, 2021 is 61%. This indicates that the stock market is likely overvalued.

If the market was suddenly revalued at the long-term average of 15.96x earnings rather than the current 26.16x earnings, then your stock market investments would be worth roughly 61% of what they are currently worth.

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

Assets

Brokerage (1.4% Month, +1.4% YTD):

As I mentioned above, the increase in our account is primarily due to new money being invested rather than the outperformance of our actual investments.

Retirement Accounts (0.5% Month, +0.5% 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).

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 (-3.7% Month, -3.7% 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 (106.2% Month, 106.2% 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.

I used some of the money from my large commission check to top this account off and the rest went into our brokerage accounts.

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 (+0.8% Month, +0.8% 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. The only reason we were anywhere close to that this month was because of the large commission check.

Total assets after adjusting for MCTWI (+0.8% Month, 0.8% 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 was slightly higher than our non-adjusted asset value. This would indicate that valuations came down a bit over the course of the year.

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 (-67.2% Month, -67.2% 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.

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

Primary residence mortgage (-0.2% Month, -0.2% 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)

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).

Total net worth (+1.0% Month, +1.0% YTD)

We edged a bit closer to our goal of $10M in net worth, but we are still about $350k shy. I am very confident we will significantly exceed $10M this year due to an expected large commission check later this year.

Conclusion

This was a surprising good month for our net worth considering the terrible performance of the market in January. I put most of the cash received to work in the market – I made a few purchases of both Meta (Facebook) and Paramount.

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