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.
May was a decent month. Although our investments are performing fine, we are spending a lot of money to complete the construction on our house. However, we’re getting close to being done and we’re really excited to enjoy the new covered patio, especially given the long outdoor season here in Santa Barbara.
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. As a reminder on how the MCTWI works, 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. By my estimates, the market continues to be significantly overvalued.
To calculate the “true” value of your investments (that is, what their price would be at the stock market’s long-term average valuation) you just multiply the value of your investments by the MCTWI. So if your total portfolio of domestic stocks is worth $100k at today’s valuation, the MCTWI adjusted valued is $100,000 * .63 = $63,000. This is the number you should use for planning purposes.
Without further ado, here is our net worth report for May, 2018:
Our net worth was essentially unchanged in May (up .1%) while the S&P 500 was up 2.41%. This disparity is due to a large payment for the work being done to our house.
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). 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 – investments – This is our early retirement fund and where most of our net worth is. This account was up 1.6% – it underperformed the S&P 500 due to our large cash allocation (approximately $600k).
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 accounts were up by 2.3%, almost exactly mirroring the performance of the S&P.
529 accounts – We contribute $500/month to each of the 529 savings accounts we’ve set up for our 2 kids. Assuming both of our kids go to college, we will liquidate both accounts in about 20 years.
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.
We made a large (~$38k) payment on our backyard construction last month. The work is almost done (current estimate is completion in mid-July) and we should only have ~$75k of total additional costs before we are done.
In addition, we had a ~$28k payment for the cost of sending both kids to preschool next year. $14k/year is expensive, but the school is awesome. It’s a Montessori based curriculum. After 3 years of having our daughter in a Montessori preschool I can’t recommend it highly enough. In fact, it’s been so great and she’s thrived so much in it that I’m really starting to wonder why a Montessori based curriculum isn’t used in public schools through elementary school.
This will be our first and last year having both kids in preschool at the same time. The following year our daughter will be off to kindergarten at the local public school and we’ll have 2 more years of paying for our son to attend preschool.
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 – Nothing too exciting here. The solid performance of our investments offset by large construction and educational expenses. Total assets were down 0.4%.
Liabilities
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 helped us pay down the mortgages this month. The checking account that we use to manage our rental properties had accumulated a bit of cash, so we paid off a $5k chunk on one of the mortgages. That payment plus me finding and fixing an accounting error in the tracking of our mortgages means that our balance is down by a solid $8,541.74 this month.
Primary residence mortgage – We paid $1,124.47 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. We need to have this paid off before I can really consider retirement.
Total liabilities – Total liabilities were down by $10,452.55 for the month to $1,061,541.27 (a nice 1.0% reduction from last month).
We still have over $1M in debt. At the average rate that we’ve been paying down mortgages over tell last few months (about $2,200/month) we’ll be under $1M in debt in about 30 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.
Not a lot to say here. Our net worth was down about $15k, but our investments performed ok. I’ll be very happy when the construction on the house is finally done
Here’s a graph of our net worth per month so you can see the year over year comparison.
Once we hit June we’ll start having 3 years worth of data to compare.
How did everybody else do this month? Have you been riding the stock market to new highs each month?
Does anybody else have any opinions on preschool curriculum? Why isn’t Montessori used everywhere?