Introduction
Last month our net worth crossed $10M for the first time, and this month we added another $300k to it. It’s amazing what happens once the snowball starts rolling.
Here’s what our net worth looked like for July:
Our net worth change for the month was +2.9%, which trailed the S&P’s 9.22% return (although the market is down -9.1% for the year). 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 July, 2022 is 81%. This indicates that the stock market is likely a bit overvalued.
If the market was suddenly revalued at the long-term average of 15.97x earnings rather than the current 19.71x earnings, then your stock market investments would be worth roughly 81% of what they are currently worth. The recent downturn has caused the stock market to get closer to fair value than it’s been in quite a while
Let’s take a closer look at our assets and liabilities.
Assets
Brokerage (+7.2% Month, +10.3% YTD):
We slightly trailed the S&P this month, but it’s hard to get upset about any month when you investments are up 7.2%.
Retirement Accounts (-1.5% Month, -16.3% 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).
I’m not sure why these accounts are trailing the S&P 500 so much. I’m guessing it’s because we have a decent amount of international exposure.
529 accounts (+16.8% Month, -6.1% 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.
These accounts are slightly outperforming the S&P 500 for the year.
Checking (+56.9% Month, +102.6% 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.
No change this month.
Stock options: (+0% Month, +0% Year)
No change this month.
Rental properties (+7.3% Month, +13.5% YTD):
I update the value of our rental properties at the end of each quarter.
No change this month.
Primary residence (+0% Month, +19.6% YTD):
I update the value of our primary residence at the end of each quarter.
No change this month.
Total Assets (+2.8% Month, +9.2% 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. We are already up by 9% through the first 7 months of the year, so we are looking pretty good right now.
Total assets after adjusting for MCTWI (+2.6% Month, +9.9% 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 (+880.6% Month, +188.7% 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.
Rental mortgages (-0.2% Month, -2.6% 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, -1.4% 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 (+2.1% Month, -0.4% 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 (+2.9% Month, +10.3% YTD)
This is our second month with our net worth over $10M. Will it hold through the end of the year? Probably not. But if we finally get the long-overdue market correction then I’ll hopefully be able to put the rest of my cash to work.
Conclusion
This was a pretty good month – nothing exciting happened in the markets and our net worth continues to grow.
How did everybody else do this month? What’s your asset allocation, and how does it compare to your ideal allocation?