Introduction
I am way, way behind on my monthly updates, so I’m going to try to catch up on all of my reports over the next week.
I track and publish our net worth each month both as a way of keeping us accountable and perhaps to inspire other along their own financial journey.
Here’s what our net worth looked like for November:
Our net worth change for the month was +2.3%, which trailed the S&P’s +5.38% 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.
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 this month is 78%. This indicates that the stock market is likely a bit overvalued.
If the market was suddenly revalued at the long-term average of 15.99x earnings rather than the current 20.38x earnings, then your stock market investments would be worth roughly 78% 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 (+5.0% Month, +6.3% YTD):
Our stock market investments were up by about the same amount as the S&P. We are still holding a bit of cash, and that creates a drag in up markets.
Retirement Accounts (+1% Month, +18.9% 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 still suffering from poor timing here. I made my entire year’s worth of 401k deferrals in January and February, and those investments then fell with the rest of the market.
529 accounts (+0.8% Month, -14.9% 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 (-22.6% Month, +41.9% 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, +8.5% YTD):
I update the value of our rental properties at the end of each quarter.
No change this month.
Primary residence (+0% Month, +4.0% YTD):
I update the value of our primary residence at the end of each quarter.
No change this month.
Total Assets (+2.0% Month, +4.2 YTD):
Decent increase in our assets, especially since none of our real estate was revalued.
Total assets after adjusting for MCTWI (+1.8% Month, +4.4% 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 (a reduction in liability) is good, while a positive number (an increase in liabilities) is bad.
Credit cards (+100.8% Month, +118.5% 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.
The big increase here is due to some ticket and reservations for our 2 big vacations next year.
Rental mortgages (-1.0% Month, -0.3% YTD)
We are chipping away at these mortgages, and we’ve been paying off 0.2% – 0.3% of the balance each month. The yearly total has increased because I found an accounting issue with how I was tracking one of our loans.
At the rate we are paying off our mortgages we are 20+ years from retiring these loans.
We had built up a sizable cash balance in the checking account for the properties we own with my mom, so we decided to make $10k payment toward one of the mortgages. With no additional payments this mortgage will be paid off on 12/2/31.
Primary residence mortgage (-0.2% Month, -2.4% 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 (+0.3% Month, -0.2% 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 (+2.2% Month, +4.8% YTD)
We’re just barely over $10M, which is a nice round number to hit. Hopefully we can stay there through the rest of 2022. I’m going to set our 2023 goal at $11M (a round 10% increase from where we are now).
Conclusion
Another up month, and we are back over $10M in total net worth. It’s great to be positive for the year despite how poorly the S&P has done.
How did everybody else do this month? What’s your asset allocation, and how does it compare to your ideal allocation?