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 discuss any changes I’m thinking of making.

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 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 – the MCTWI tells you how much your stock investments would be worth assuming “normal” valuation rather than the current valuation in the market.

The net worth report below includes an adjustment for the Money Commando True Wealth Index (MCTWI). The MCTWI for May, 2019 is 72%.

Here’s how the MCTWI has trended over time.

As you can see, the market’s overvaluation (where the graph is lowest) was in January, 2018. The market was closest to fair value in December, 2018, but has since trended back towards greater overvaluation.

If the market was suddenly revalued at the long-term average of 15.68x earnings rather than the current 21.15x earnings, then your stock market investments would be worth roughly 72% of what they are currently worth

Over the long term, you would expect the MCTWI to eventually converge on 100% (that is, the long-term average). We were headed that way for almost all of 2018, but starting in January, 2019, the trend has reversed and we’ve generally been moving away from 100% (and therefor getting more overvalued).

Without further ado, here is our net worth report for May, 2019:

Our performance for the month was quite a bit better than the S&P 500. We were down 3.0% and the S&P was down 6.35%. That’s about what I’d expect, as our large real estate and cash holdings mean our net worth should be more stable than the market as a whole. We will underperform when the market is up and outperform when the market is down.

This was definitely a good news/bad news month. The bad news is that there was a lot of red on our monthly numbers, but the good news is that almost all of our year-to-date numbers are still positive.

Assets

Brokerage (-5.6% Month, +3.9% YTD):

The value of our brokerage account was down $157,528.22 for the month but we are still up $100,035.79 for the year. We used some cash from this account to purchase two rental properties, so the year-to-date numbers look worse than they really are.

Retirement Accounts (-1.1% Month, +16.1% 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). The value of these accounts was down significantly less than the S&P due to our ongoing contributions.

Assuming that we continue to contribute $18k/year to the 401k and we get a 8% annual return, it looks like the 401k account will hit the $1M mark in about 5 years.

529 accounts (-4.5% Month, +23.2% YTD):

These accounts outperformed the S&P 500, which makes sense given that these accounts are invested 100% in S&P 500 accounts plus we contribute $1,000/month.

Assuming both of our kids go to college, both accounts will be 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 (-48.4% Month, -42.4% 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.

In addition, we have a separate checking account to handle the income and expenses for our rental properties.

We are still below our $50k goal, but I expect to see the value of these accounts climb over the new few months

Private investments: unchanged

We have 2 separate private equity investments. Since there’s no way to value these investments I will continue to keep them valued at my initial investment amount.

I’ve heard that there might be a liquidity event for one of my private equity investments later this year. It’s nothing other than a rumor at this point, so I’m not going to adjust my valuation until it becomes real.

Stock options: (+100% Year)

There’s been a lot of activity in this category over the last few months. My employer had a liquidity event in December and I was able to cash all of my then-outstanding vested shares. However, I had a few more shares vest in January, and I was able to exercise and sell those at the end of the month.

I still have a few unvested options, and I’ll continue to track the value of those as they vest quarterly. The most recent block vested this month.

I’m valuing my stock options at price used for the most recent liquidity event.

Rental properties (+0% Month, +34.3% YTD):

There was a big jump in this category due to our rental purchases. The value of the two properties is $359,800, which accounts for the entire gain here (I only revalue my properties at the end of each calendar quarter).

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

Just like the rental properties, I adjust the value of our house at the end of each quarter. According to Zillow, the value of our house has only changed by $110 over the course of the year.

Total Assets (-2.6% Month, +9.2% YTD):

Our assets were down by a total of $179,394.23 for the month, but we are still up almost $600k for the year. Wow!

Total assets after adjusting for MCTWI (-2.2% Month, +7.0% YTD):

This is a better indicator of our performance for the month. The adjusted number indicates that about 2.2% of the 9.2% was due changes in market valuation, and the remaining 7.0% of gain was due to the actual underlying performance of our investments/assets.

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 (-54.8% Month, -46.5% YTD)

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 (-0.2% Month, +42.3% YTD)

Last month we had a big jump in our liabilities due to the mortgages on the rental properties we purchased.

We paid off almost $2k on our rental mortgages this month, and this pace should continue into the foreseeable future.

Primary residence mortgage (-0.2% Month, -0.9% YTD)

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.

We are making steady progress on this, but we have a long way to go to pay this loan off completely.

Total liabilities (-0.3% Month, +19.6% YTD)

Most people would be well served by spending less time worrying about the value of their assets (especially equities, which vary wildly) and instead focus on the steady progress of paying down liabilities.

This was a pretty “regular” month. We paid $2,400.14 towards our mortgages.

Total net worth

Our net worth was down $175,015.78 (a 3.0% decrease) for the month. I’ll tell you this – it’s not very fun to see your net worth drop that much in just 30 days.

However, I’m consoled by the fact that our net worth is still up $371,133.36 for the year (7.1% increase). It’s really amazing how fast our net worth has grown now that we’ve got the snowball rolling downhill. Our investments are making a much larger contribution the increase in our net worth than my salary is.

We’ve seen solid growth in our net worth since I started tracking the number in June, 2016, with the biggest jumps in the middle of 2017 when I received my huge commission checks.

Here’s what our asset allocation looks like:

These numbers are mostly unchanged from last month, and are reasonably close to where I’d like them to be at this point in our lives.

Most of our money is in equities (stocks and mutual funds). This category has the highest expected returns as well as the highest volatility.

Our rental real estate allocation effectively takes the place of bonds in our portfolio. Real estate provides relatively steady returns and is largely uncorrelated with the stock market.

I’d prefer if the equity in our primary residence was a smaller percentage of our overall net worth (the equity in the house doesn’t do much for us). We plan to never move, which means the value of the house doesn’t matter. My hope is that over the next decade or so we’ll get this percentage down to 10%, even as we pay off our mortgage, by growing the rest of our investments. 

Conclusion

This was definitely a month to forget. The stock market was down substantially (6%+ in one month!) and our net worth was dragged down with it. I’ll reiterate – seeing your net worth drop by 6 figures in one month is never fun.

Thankfully, June should be a much better month. The last month of the quarter is always the best for our dividend payments, and I’m expecting $10k+ in passive income for the month.

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