Introduction

Here’s what our net worth looked like for May:

Our net worth change for the month was -1.7%, which trailed the S&P’s 0.18% 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.

Our return in May broke this general rule, primarily due to the underperformance of my 401k.

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 March, 2021 is 83%. 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 19.15x earnings, then your stock market investments would be worth roughly 83% 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 3 years.

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

Assets

Brokerage (+0.5% Month, -6.3% YTD):

The stock market was essentially flat in May and our investments followed suit. We did outperform slightly (0.5% vs 0.18%) but this is essentially a rounding error. We are down 6.3% for the year to date, which is a pretty significant amount of money ($256k).

Retirement Accounts (-13.0% Month, -13.8% 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).

Last month my 401k looked like it has significantly outperformed the market. I dug into what was going on and found out that Merrill Lynch had changed their 3rd party access and as a result Quicken was no longer updating my 401k balance correctly. I fixed that this month and that lead to the big drop in May.

For the year to date our returns are in-line with the S&P 500’s returns.

529 accounts (+12.7% Month, -5.1% 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.

The returns for this month look strange for the same reason the retirement accounts looked strange – Quicken wasn’t downloading our recent transactions for the 529 accounts. This has been fixed and the good news is that it looks like our contributions have more than made up for the market’s drop.

Checking (-7.0% Month, +29.2% 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.

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 (+0% Month, +5.7% YTD):

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

No change this month.

Primary residence (+0% Month, +2.8% YTD):

I update the value of our primary residence at the end of each quarter. I don’t really care too much about this value, as we hope to live in this house forever, but it’s better that it’s going up than going down.

No change this month.

Total Assets (-1.5% Month, -2.6% 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 bit behind this goal right now, but who knows what the rest of the year holds.

Total assets after adjusting for MCTWI (-1.4% Month, -2.1% 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 the increase our assets adjusted for MCTWI are doing better than our non-adjusted number.

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 (+129.5% Month, -50.4% 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 (-0.8% Month, -2.2% 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, -1.0% 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, -2.1% 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 (-1.7% Month, -2.7% 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 in June.

We are significantly outperforming the stock market, which was down about 13% through the end of May. That shows the value of diversification and holding mostly lower risk, high quality investments.

Conclusion

For all the pain in the stock market, it’s crazy that our net worth is only down 2.7% for the year. Part of that is due to our large real estate allocation, and part of that is due to a large commission check I received earlier this year.

I’m already looking forward to my June net worth report, as I expect we’ll finally hit the $10M net worth mark.

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